Why a Former Creandum Partner Is Betting on Bonds: The Rise of Venture Debt for Scaleups

By a Senior Technical/Financial Audit Journalist

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The Player and the Play: Ex-Creandum Partner Enters Venture Debt

A former partner at Creandum, one of Europe’s most established venture capital firms with investments including Klarna, Spotify, and iZettle, has launched a dedicated fund designed to facilitate bond issuance for scaleup companies. The fund focuses exclusively on venture debt instruments, specifically bonds, as an alternative to traditional equity financing (Source 1: Sifted.eu).

Venture debt differs from equity financing in three structural dimensions: it imposes fixed repayment terms, carries periodic interest obligations, and does not dilute existing shareholders. Unlike early-stage convertible notes, venture debt is typically deployed into companies with demonstrated revenue streams, predictable recurring income, or tangible assets that can serve as collateral. The Creandum alumnus’s move represents a transition from a firm that historically deployed equity capital into a vehicle structured for contractual repayment.

Key structural distinction:

| Feature | Equity Financing | Venture Debt (Bonds) |
|---------|-----------------|---------------------|
| Dilution | Significant | None |
| Repayment | None (perpetual) | Fixed maturity + interest |
| Governance | Board seats, control rights | Covenants, financial ratios |
| Target stage | Pre-revenue to pre-IPO | Revenue-generating scaleups |

The credibility of Creandum’s brand within European technology finance provides the fund with immediate institutional recognition. The former partner’s network of limited partners, portfolio company founders, and co-investors constitutes a distribution advantage that pure-play debt funds typically lack.

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The Hidden Economic Logic: Why Bond Financing for Scaleups Now?

Three macroeconomic and structural variables converge to create the current entry point for venture debt in Europe.

First, equity market contraction. European VC funding volumes declined approximately 45% year-over-year in H1 2023 versus H1 2022 (Source: PitchBook European Venture Report). Down rounds have become statistically more common; companies that raised at elevated 2021 valuations now face significant dilution penalties when seeking new equity. Bonds offer a non-dilutive bridge that preserves founder ownership while providing working capital for growth.

Second, the interest rate regime shift. The era of near-zero interest rates 2010-2021 compressed yield across all fixed-income asset classes, making traditional lenders reluctant to underwrite unsecured startup debt. With base rates in the Eurozone at 4.0% and the UK at 5.25%, specialized debt funds can now offer limited partners risk-adjusted returns that compete with public market bonds, while charging scaleups interest rates that remain cheaper than equity dilution.

Third, revenue maturity of the European scaleup cohort. The 2015-2021 vintage of European startups has produced a substantial population of companies with €10M-€100M in annual recurring revenue. These entities have auditable financial statements, multi-year operating histories, and predictable cash flow patterns—precisely the characteristics required for bond underwriting.

Comparative market maturity:

• United States: Venture debt represents approximately 15-20% of total venture financing annually (Source: SVB State of the Markets Report)
• Europe: Estimated at 5-8% of total venture financing, reflecting a structural gap that the new fund seeks to exploit

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Deep Entry Point: Reshaping the Supply Chain of Scaleup Capital

Traditional venture capital operates as a gatekeeping mechanism: limited partners allocate capital to VC funds, which deploy equity into portfolio companies at negotiated valuations. This creates a linear capital supply chain with high friction—founders must accept valuation terms set by a small number of potential lead investors.

Venture debt introduces a parallel capital channel. The new fund will raise capital from institutional limited partners—insurance companies, pension funds, and family offices—and deploy it as loans or bond purchases to scaleups. Unlike equity VCs, debt fund managers do not require board seats, veto rights, or valuation agreements. They require contractual compliance with repayment schedules and financial covenants.

Capital flow comparison:

``
Traditional Model:
LPs → VC Fund → Equity Investment → Portfolio Company (dilution + governance)

Venture Debt Model:
LPs → Debt Fund → Bond/Loan → Portfolio Company (contractual obligation only)
``

Three structural implications emerge:

• Secondary market potential. If venture debt instruments achieve sufficient standardization and trading volume, bond trading platforms for private company debt could develop. This would create liquidity for institutional investors holding scaleup bonds, analogous to the leveraged loan market.
• Financial discipline imposition. Bond structures introduce fixed maturity dates and interest payment obligations. Portfolio companies operating under debt covenants must maintain minimum cash balances, revenue growth rates, or EBITDA margins. This contrasts with the typical VC-backed company’s focus on user growth and market share.
• Institutional demand. European pension funds and insurance companies manage approximately €8 trillion in assets (Source: European Insurance and Occupational Pensions Authority). These institutions require yield-generating assets with defined risk parameters. Venture debt offers exposure to technology company growth without the volatility and illiquidity of direct equity holdings.

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Risks and Mitigations: The Other Side of the Bond Bet

Venture debt carries distinct risk factors that differentiate it from both equity investment and traditional corporate lending.

Leverage risk. Scaleups may over-extend by accepting debt obligations that their revenue growth cannot support. If a company with €5M annual recurring revenue issues bonds requiring €1M annual interest payments, any revenue decline creates immediate default probability. Historical data from the US venture debt market indicates default rates of 3-6% annually, with concentration risk increasing during economic contractions (Source: Cambridge Associates Venture Debt Index).

Information asymmetry. Unlike public companies, private scaleups do not have standardized credit ratings. Fund managers must conduct proprietary underwriting—analyzing deferred revenue, churn rates, unit economics, and contract quality. Pure-play VC partners often lack the credit analysis expertise required for debt underwriting, which creates operational risk for newly established debt funds.

Recovery dynamics. In equity financing, a distressed company can be restructured, sold, or written down. In debt financing, the fund holds contractual claims that must be enforced. The absence of a liquid secondary market for private company debt means that default events may require legal enforcement, asset liquidation, or negotiated restructuring.

Risk matrix by company maturity:

| Revenue Range | Default Probability | Recovery Rate (Expected) | Underwriting Complexity |
|---------------|-------------------|------------------------|------------------------|
| €1M-€10M | 6-8% | 40-50% | High |
| €10M-€50M | 3-5% | 50-65% | Moderate |
| €50M+ | 1-3% | 65-80% | Low |

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What This Means for Founders and Investors: A New Equilibrium

For founders: The availability of venture debt alters capital structure optimization. Companies that achieve revenue predictability can now choose between equity financing (dilution, governance, indefinite holding period) and debt financing (interest cost, covenant compliance, fixed repayment schedule). The optimal capital structure likely involves a mix: equity for early-stage R&D risk, debt for growth-stage scaling.

For equity investors: Venture debt reduces the dilution pressure that forces early-stage investors to participate in follow-on rounds to maintain ownership percentages. If portfolio companies can access non-dilutive capital for 12-24 months, equity VCs can defer valuation decisions until market conditions improve—potentially increasing their fund returns.

For institutional limited partners: Venture debt funds offer a yield premium over public market investment-grade bonds while maintaining lower volatility than direct venture equity. A well-constructed venture debt portfolio targeting 8-12% gross returns with 3-6% default rates provides risk-adjusted returns that compete with private credit and mezzanine debt.

Market prediction: The European venture debt market will grow from approximately €2-3 billion annual issuance in 2023 to €8-12 billion by 2028, contingent on the establishment of standardized underwriting frameworks and secondary trading mechanisms. The ex-Creandum partner’s fund launch represents not an anomaly but a leading indicator of structural maturation in European technology finance.

The bond bet is not a replacement for venture capital. It is the creation of a parallel capital system—one that introduces contractual discipline, institutional capital, and non-dilutive growth financing into an ecosystem that has relied almost exclusively on equity for two decades. Whether this system achieves the scale and stability of its US counterpart depends on underwriting discipline, regulatory clarity, and the willingness of European scaleups to trade some freedom from equity governance for the fixed obligations of debt.

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Disclaimer: This article is based on publicly available information and does not constitute investment advice. All data points are cited from their original sources where identifiable.