Two firms that offer asset-based financing to the technology industry are joining forces to offer up to $500 million in such finance to private companies in what has become the hottest trend in both venture capital and private credit.
Viola Credit, which lends to what it calls the “innovation economy,” is forming a strategic joint venture with Cadma Capital Partners, which provides financing for high-growth technology companies and the investment firms that sponsor them.
Cadma is an affiliate of Apollo Capital Management, which has called asset-backed finance “the next evolution of private credit” and is one of the leaders in bringing asset-backed lending to the private markets. The private asset-based finance asset class, at around $5.2 trillion at the end of 2022, is projected to grow to $7.7 trillion over the next five years, according to a report by KKR.
Asset-based lending to private companies became even more popular following last year’s collapse of Silicon Valley Bank, which catered to the venture capital world, and to the broader regional bank crisis that led many banks to pull back on lending. Providers say that asset-based lending is a cheaper form of financing in a high-interest rate world. The advantage for young companies is that it does not rely on a company’s profitability.
Some argue that asset-based finance is safer than venture debt, especially in a market when equity fundraising has slowed and IPO exits are far off.
“A fundamental premise of asset backed loans is that they can pay themselves off by selling, running off, or recapitalizing the pledged assets,” said hybrid VC financier Upper90Capital in a post on Medium. “Venture debt, on the other hand, requires another equity round to be raised, which makes the debt heavily correlated with the equity outcome.”
Viola Credit, a global credit asset manager with over $2.5 billion under management, has completed over $2.8 billion of asset-based lending transactions for fintech, real estate tech — or proptech, and insurance technology companies.
“This is an important milestone that will deepen our ability to support technology-enabled lenders with a full suite of asset-based financing solutions across their origination lifecycle,” said Ido Vigdor and Ruthi Furman, managing partners and co-heads of Viola Credit in announcing the deal.
“We believe that Cadma’s deep understanding of the venture and growth ecosystem, combined with Viola Credit’s global platform and strong track record, will enable us to provide more ABL solutions to leading financial technology platforms,” Jon Beizer, CEO of Cadma, added.
Josh Brody, president of Cadma, said the deal “demonstrates Cadma’s differentiated approach to expanding our reach in asset-backed credit origination. Viola Credit’s proven track record, deep expertise, and disciplined underwriting align with Cadma’s origination strategy and partnership model of working with leading venture and growth firms.”
Viola Credit is part of the Viola Group, which has $5.5 billion in assets under management and focuses on financial services. Cadma is an asset-backed finance platform. Earlier this year it announced a joint venture with Runway Growth Finance, which provides finance to late- and growth-stage companies seeking an alternative to raising equity. That JV plans to offer up to $200 million in financing.