The venture capital fundraising environment has been a challenging one over the past year. In the U.S., venture capital deal value in the third quarter of 2022 was $43 billion, a nine-quarter low, according to PitchBook and the National Venture Capital Association.
Though we’ve talked a lot about the abundance of VC dry powder, firms are more selective now and even requesting new terms, like more equity, before committing to a new investment.
As startups sought out alternatives, many turned to non-dilutive debt and credit facilities. The PitchBook and NVCA report noted that venture debt figures in the U.S. continue to rise. Activity was over $22 billion in the third quarter of 2022, the fourth consecutive year above $20 billion.
Typically, companies with strong revenue and already venture-capital backed are good candidates for a loan or a line of credit.
The company, which provides more than 1,500 customers, like Chime, SoFi, Robinhood, Gusto and Public, digital identity verification and fraud services, closed on a $95 million credit facility with J.P. Morgan, Silicon Valley Bank and KeyBanc Capital Markets.
Similar to the size of TripActions, Socure is a post-Series E company with a valuation of $4.5 billion, according to the company. It raised twice in 2021, the first a $100 million in Series D funding, then valued at $1.3 billion, and again at the end of that year, a $450 million Series E round, boosting its valuation to $4.5 billion.
It was that equity, its tripled customer base in the past two years and existing relationships with many of the top banks and financial institutions that gave Socure founder and CEO Johnny Ayers confidence that the company was on firm footing to kick off credit facility discussions.
“We had the opportunity to have some conversations with a number of the banks, certainly they're able to borrow money at the cheapest overnight rate of anyone, and so we felt it was an opportunity at very attractive rates to pretty significantly strengthen the balance sheet and put us in a really good position to be offensive,” Ayers said. “We were given terms, and an amount that we were able to raise, in an environment where good companies are going to be worth a lot less than they thought they were, which will give us an opportunity to grow inorganically in a unique way.”
Ayers explained that there are companies — unicorns included — that will come to the realization that their $10 million or $20 million of annual recurring revenue was not worth a billion-dollar valuation. This will lead them to take a down round or look to strategic acquirers to get stock in a company so that it could be worth that valuation.
Socure’s line of credit results from the company being in a position where it is not waiting for a new round and can show it is one of the few companies that can build a robust platform, Ayers added.
Not only does the line of credit strengthen Socure’s balance sheet, but where Ayers references being “offensive,” he is referring to the ability to make acquisitions and break into new markets.
Ayers was vague about whether or not the company had already made an acquisition, but did say it was making some acquisitions in the near future.
In addition, Socure is currently working with large financial, healthcare and insurance institutions and is hearing from them that they want to consolidate their partnerships around two or three large strategic partners.
Ayers also mentioned that demand for what Socure does -- pairing predictive analytics, artificial intelligence and machine learning techniques with data from the internet, physical government-issued documents and identifiers like email, phone, address and date of birth, to verify identities in real time -- has increased since President Joe Biden’s efforts to combat identity theft were made known.
As a result, Socure is looking at adapting its capabilities for the commercial sector to large markets like state and federal government.
“As the largest private company in the identity verification fraud market globally, we're actually in a really unique position to be that strategic option,” Ayers added. “And a very innovative tech-forward, fast-moving strategic option versus one of the larger legacy companies that might not be as good of a cultural fit as we would be for a lot of these potential acquisitions.”
Editor's note, March 8, 8:47 a.m. PST: Socure raised both a Series D and Series E funding round in 2021.