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Private Tech Debt Costs Rise

Data storage company Actifio, which raised money at a $1.1 billion valuation in 2014, borrowed $10 million this year from a venture debt fund. But the interest rate on the loan had a minimum interest rate of 8.75%, up from 8.25% for a loan it took out last year. Other fees went up as well, raising the total cost by another 0.25 percentage points.

Actifio isn’t unusual. The cost of borrowing has ticked up for some private tech companies this year. It’s a reaction to flattening valuations in the private tech equity markets, where money isn’t as plentiful as it was. That is increasing startup demands for loans and giving lenders more power.

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But TriplePoint is also currently holding underwater warrants for companies including gaming company Mind Candy and the media company Thrillist. So when lenders believe valuations are too high, they try to negotiate to take more fees and fewer warrants. Companies with high valuations, on the other hand, try to push lenders to take more warrants in exchange for a lower interest rate. Filings show both Hercules and TriplePoint are taking more warrants this year, which implies they don’t think valuations are as overheated as last year.

Sal Cangeloso commented on this article.
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“Folks providing capital have a little more pricing power. Debt is more valuable and you have the opportunity to charge [for it].”