Venture Debt Gains Traction as Fintech Startups Face Tighter Markets

Venture debt financing for fast growing investor backed startups provide funding without necessarily forcing owners to give up more equity, but it's no longer just for late stage companies.

In 2026, venture debt is gaining more attention as startups face longer fundraising timelines, tighter evaluations, and more selective equity investors.

Now there are investors who are Expected to focus more on profitability among fintech companies even as fundraising picks up and regulatory conditions improve.

Meanwhile, payments do remain a key focus for venture capital driven by competition among banks, emerging fintechs, and new entrants.

So what do nextgen investments in fintech actually look like?

Well, joining me live at the New York Stock.

Exchange is Kyle Brown, CEO of Trinity Capital.

Thank you so much for joining me.

Well, first and foremost, when it comes to venture debt today, give us an understanding of how startups are actually using this.

Sure, so it's really it's a different form of lending that limits dilution as companies are building.

Typically paired with equity, it helps get companies further down the road where they can achieve milestones as they're heading towards another fundraise, M&A, IPO, some sort of liquidity event.

So it's a way to build the capital stack in an efficient way that founders and owners can limit.

As they grow and build their business, so for people who may not be as familiar, give us an idea of why this matters in the current environment, especially as we kick off 2026.

Sure, so the venture capital market has grown into a very robust market, over $300 billion annually now invested in equity, which allows for a massive amount of debt capital to be paired with it.

As companies are building their business, they have these certain milestones in place where if they can achieve them, they can reach a higher valuation.

And so the capital really just helps them get 6 to 12 months further down the road.

The way we think about it from an underwriting perspective is these companies have some type of technology.

It could be IP and technology that they have a couple year runway ahead of their peers.

If it's a fintech company, it could be assets that are sitting in some type of SPV where we're providing an advance against those assets, and they can raise less equity to fund their business which they're generating fees off of and therefore limit dilution.

So especially in the fintech space, if you are A fintech company that has some kind of technology and you have assets that are sitting in SPV, you don't want to raise all of your equity to fund the business.

You want to do that in a really efficient way and that can come in the form of debt capital.

And so these are typically shorter term loans, 3 to 4 years in length.

Interest only for a season and when it comes to fintech companies we're typically talking about an advance against those assets and so 70-80% advance against those assets that are sitting in an SPV so I do want to zoom in on the fintech space where you see the biggest potential right now.

I think FinTech generally across the board is getting disrupted.

It's obviously it's it's an archaic old massive business, you know, I think as we get a little bit more regulatory clarity, we're going to start seeing more and more competition, particularly in like blockchain.

And as AI advances we're going to see more there, but right now it's the banking system and your traditional kind of banking revolvers, merchant cash advances, B2B lending.

It's all being disrupted right now and so there's Limitless opportunities there, but anywhere where a bank or a company is advancing capital to another business or there's some type of financial receivable, there's an opportunity for disruption right now.

So we are really agnostic to the industry.

We're really focused on the receivables and the quality of the receivable and the underlying borrowers associated with the receivable.

Yeah, and I do want to ask you about business development companies.

So what role do they play?

So business development companies, investors typically invest in them because they want access directly to loans, right?

And so the majority of BDCs are lending to private companies or providing equity to private companies.

Trinity Capital is an internally managed BDC.

That means there is no management company.

You're not getting charged management fees.

Incentive fees.

If you own our stock, you own the management company.

And so we lend money directly to companies and we also manage third party capital and generate management fees.

We operate 5 unique businesses all in kind of late stage VC into the lower middle market private equity backed companies, and we're supporting these businesses with growth capital that they can use to build the business.

We typically are looking to take execution risk, not technology risk, but BDCs, you buy it because we distribute all of our income annually.

Directly to investors, so it's a great dividend play and then for Trinity when you own the management company, it's a great growth opportunity as well.

And I do want to ask you about the landscape, especially when it comes to policy, in particular monetary policy.

So you just happen to be joining us on a very eventful day, given the fact that the Federal Reserve will be concluding their two-day meeting and while no change is expected at the conclusion of the meeting later today, we will be paying attention to what Fetcher Powell says.

And that is because we're looking for any change of language as well as direction for the central bank moving forward, but we know there are a lot of moving parts.

So how do you rates and monetary policy affect your space?

I mean, listen, we are in the Fed cycle.

It is a cyclical process and the Fed causes inflation and then the Fed tries to fix inflation.

And we are currently in the process of them trying to fix it.

Rates are coming down.

Whether or not it makes sense or not, it doesn't really matter.

It's understanding what the game is.

Rates are coming down 50 basis points.

That's what it seems like.

As a publicly BDC, what we're looking at is, OK, that's going to impact net income for loans that are floating.

What we do is we make sure we have floor rates on a lot of our loans to protect ourselves in the event that rates continue to come down.

And then when rates do come down, we lock in long term bonds to lock in low interest rate loans for a long period of time.

So running the business and how we think about it is let's protect ourselves once rates are high for when rates come down, and when rates are low, let's lock in long term capital that protects us and gives us inexpensive capital for a long period of time.

I would love a time where we're not watching what the Fed is doing, but that is the that is currently the nature of it indeed all of us will be paying attention to what happens later on this afternoon, but here we are about to close out the first month of 2026.

We are looking ahead to the rest of 2026.

So when it comes to what's happening we're talking about.

M&A expectations as well as IPOs.

So for companies out there, startups, whether they're late stage or mid stage, what would you say to them given everything that's coming down the pipe?

I would say AI is not going away.

Valuations might be reset at some point, but AI is not going away, and you need to integrate it into your business one way or the other.

You must to become efficient and keep up with your competition, and I'm really bullish on 2026 right now.

There's a ton of activity in the lower middle market.

A lot of equity sitting on the sidelines is now moving in.

Acquisitions of companies that are being revalued.

There's just a ton of activity.

Our pipeline has never been so robust and so very bullish on what's happening in 2026 and excited to see how we execute.

And of course since we are talking about fintech, I do want to get your take on where you see venture going, not just this year but also beyond.

You're going to see more and more investments in the space, and I think as soon as the SEC continues to give more clarity on just regulatory clarity, it's going to create a ton more competition and innovation.

And then you'll see a lot of new investments coming in, a lot of new companies coming in, and so I think the more clarity we get on regulatory matters relative to blockchain, AI, etc. it's just going to foster innovation in our economy.

OK, Kyle, thank you so much for joining me here at the New York Stock Exchange today.

I appreciate all your insights.

Thank you.