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Launch HN: 8vdX (YC W22) – Venture debt to complement a seed round

86 points by rchachra ↗ HN
Hey HN! We are Ravi and Vijay from 8vdX! (https://www.8vdx.com/) We are building a founder-friendly venture debt marketplace for early stage startups. We also provide seed-extension debt to breakout companies to extend their runway to get to a better Series A raise. Our mission is to be the preferred debt partner for high growth startups and scale with them as they grow from seed stage to Series A and beyond.

Vijay and I were both working at Eight Capital, a high yield fund that I cofounded, when we gave a bridge loan to Kodo (a startup from YC W21) to support their high growth rate while they were getting their YC funding. Kodo is an Indian company and had to complete some standard processes for that to happen, but they needed money right away. Our loan allowed them to accelerate their growth and they ended up having an amazing Demo Day result.

We wondered, could this be repeated with other startups or was it a one and done investment? We looked at publicly available data and quickly came to the conclusion that we could indeed underwrite venture debt to seed to early stage startups. That was the genesis of the 8vdX venture debt marketplace.

We launched 3 months ago and have already provided venture debt to 16 startups. In good YC fashion, we’ve been focused on our batchmates to begin with :) But we believe this model can scale beyond the YC ecosystem and we’re very interested in that.

Why do we think this makes sense right now? Seed rounds today are the same size as Series A used to be a decade ago. But there are no existing players who provide venture debt to early stage startups. Last year, seed and early stage and Series A startups raised ~$100B from equity investors. Venture debt can be up to 25% of the balance sheet of these rapidly growing companies, making this a $25B annual opportunity in this underserved market.

Our loans are founder friendly. We do not force founders to open captive bank accounts, cash flow sweeps, take personal guarantees of the founders, or force the startup into bankruptcy if the startup is unable to repay. We have a simple and transparent application process to receive funds through the 8vdX digital platform.

Currently, startups can apply digitally for up to $150k of debt by visiting our startup portal at 8vdx.com, and upon approval, the funds are wired to their account on the same day. 8vdX has a capital-light business model as the venture debt to the startups are entirely funded by angels and institutional investors through the marketplace. We have a deep product pipeline which includes multi-currency venture debt that can be extended on day zero to international companies. We will be supporting local currency venture debt for startups in India, Australia, United Kingdom, Mexico and Indonesia for the YC S22 batch and our goal is to support even more countries in the future. We are also inviting platform partnerships from online investment apps to distribute the 8vdX venture debt offering to their clients.

Vijay and I look forward to hearing your ideas, questions and feedback. Thank you!

35 comments

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refrigerator
FYI - it would be good to include a link to your site in the first paragraph — took me a while to find "8vdx.com" in the final paragraph, which isn't clickable.
dustingetz
interest rate? assuming this is cash advance credit rates for short term loan? so the loan is specifically designed for cos with low cash position heading into a fundraise?
rchachra
We are taking SAFEs in lieu of cash interest for seed stage companies. For later rounds there is flexibility given to the company to optimize the cash interest versus SAFE based on cash flows of the company.
e1g
Can you give a specific example of how I will pay you back after I borrow $100k?

It sounds like I have to return the $100k, plus some percentage of equity (in lieu of interest). If so, this sounds like an option for angels to take a position in a YC-backed company, and it would be friendly towards founders to label this product as equity financing and describe how the equity percentage is calculated.

rchachra
When you borrow $100k you repay the principal or $100k after your Demo Day fund raise and in lieu of interest we will receive a $20k uncapped MFN SAFE. In case the startup fails to raise sufficient funds to make the repayment, then the entire principal will be converted in a SAFE at a pre-agreed cap.
dustingetz
What is the repayment term, 3 months?
rchachra
6 months is the standard Demo Day note but can be reduced to 3 months on a pro-rata basis.
lizen_one
I would be interesting if you could describe how it exactly works. Can you give us a little more color on that?

1. You mentioned that this only a marketplace between lenders and startups. Does a startup create a kind of brochure describing their idea trying to lure in lenders (like kickstarter or other crowdfunding/lending sites)? Or does the startup just fills out a form and then you decide about the loan? In this case, how do the lenders decide if the want to give this startup money?

2. Who decides if a startup gets money?

3. What exactly is your part in this process? Do you quantify the risk, so lenders can only give money to startups in a certain risk category?

4. What happens if the startup fails? Who has lost money? You or the third-party lenders?

rchachra
Sure, 1. Here is a link (https://docsend.com/view/gtxd9jwdgs3izb8m) to the explainer for the bridge to Demo loan. 2. All companies presenting on Demo Day are automatically qualified. Later stage companies are underwritten on a case-by-case basis by the 8vdX team. 3. Yes, we act as underwriters and originate companies that we strongly believe will be able to raise their Series A rounds. 4. Investors invest at a portfolio level for each batch therefore there is an expected failure rate built in to the return assumptions
lizen_one
Thank's a lot. This document really makes it clear how it works. Awesome idea!
davehcker
Waiting for someone to build something like this for founders of any promising startup out there (and not just YC startups). I totally understand the current choice of sticking to YC startups though. But do you imagine accepting non-YC startups sometime in the future?

I am a first-time founder of a deep-tech, and having secured pre-seed 6 months ago, and now that I have gathered all the evidence for the viability, I would definitely consider approaching something like 8vdX.

rchachra
Yes, absolutely! We look forward to working with all promising startups as we scale our business.
threefiftyone96
Really interesting value proposition for founders!

How is the reception among the new batches of YC?

rchachra
Thanks, we are seeing strong traction both from the current batch as well as break out companies from recent batches.
jacob_rezi
Hello,

This is a fantastic idea and the value it creates in the right situation is huge. Can I ask, how is it different than Pipe? At face value their solution appeared great but the terms for qualification seemed to be unaligned with companies.

rchachra
Thank you! Pipe is revenue based financing focused on SaaS companies (Bill discounting) which means the company is pledging their revenue stream to Pipe. The 8vdX early stage venture debt is unsecured with founder friendly terms which includes 0% cash interest (we can take SAFE instead) and conversion of principal into equity instead of repayment.
sam0x17
Vijay+Ravi, I work with a large number of seed and pre-seed (many YC) startups who are in tough financial situations -- would love to see some kind of referral program as I will probably be referring a high volume of startups to your service! It looks fantastic!
rchachra
Sure, we will be happy to take a look. Though, our program is more for companies that have found PMF and the seed extension debt will allow the startups to accelerate their growth & for the founders to minimize their dilution when they raise a more successful Series A round.
ianbutler
Hey This is very interesting. Im curious about what the due diligence process looks like to underwrite the loans for these businesses. Is there any research done into the space the company is in on your end, or is it purely based on their books and projections?
rchachra
Thanks, for bridge to Demo Day loans we are underwriting the YC program. For seed extension debt-these companies are still young therefore, our analysis is also betting on traction, quality of founders and investors on the cap table. However, for later stage loans we underwrite on the basis of both a top down as well as bottoms up analysis.
jedberg
This looks pretty good for founders and angels, assuming I'm reading this right.

As an angel, I would invest $100K, and in return I would get $100K and a $20K MFN SAFE about six months later (assuming they paid it off)? Is that right? If so that actually sounds like a pretty great return for the angel investor (and is paid for by the institutional investor!).

rchachra
Hi! We have made a win-win situation for both founders and investors :) We can share more information if you have interest.
jedberg
Definitely interested! I already signed up as an investor just waiting for approval.
nmcgann
Is it fair to say the instrument is similar to a preferred or convertible debt?
rchachra
It is a promissory note with additional features.
mldemari
What kind of institional investors do you work with? I feel like the return threshold can be quite high for private credit firms and I don't believe traditional banks can support this kind of debt structure. Excluding the angels, I think the LPs behind this can create some issues.
rchachra
Hi, We are working with investors who understand the associated risks and want to have early access to fast growing high quality startups.
mldemari
Does that just mean its all angel investors and family offices?