State of the Venture Debt Market

Adam Torres and Troy Zander discuss Venture Debt.

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Show Notes:

Is the absence of a public market affecting venture lending? In this episode, Adam Torres and Troy Zander, Partner at Manatt, explore venture lending. Troy Zander, Partner at Manatt, explore venture lending. Troy will also be participating in the Venture Debt Conference hosted by DealFlow events.

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About Troy Zander

Troy is a Venture Lending and Private Credit Partner in Manatt’s San Diego office, focusing on the representation of lenders and companies in documenting technology, life sciences and middle-market financing transactions, including traditional commercial leveraged debt financings, venture lending financings and bridge loans. As a “recovering bankruptcy attorney,” I also represent lenders and companies in forbearances, loan modifications and restructurings, work-outs and asset acquisitions and dispositions.

Full Unedited Transcript

 Hey, I’d like to welcome you to another episode of Mission Matters. My name is Adam Torres, and if you’d like to apply to be a guest in the show, just head on over to mission matters.com and click on Be Our Guest to Apply. All right, so today I have Troy Zandra on the line and he’s a partner over at Manat and he’s also the one of the premier sponsors over at the Venture Debt Conference that we’ll be getting into a little bit today.

Venture Debt Conference 2025. First off, Troy, welcome to the show. Thanks, Adam. Great to be here. Thanks for having me. So we got, we got a lot to talk about, man. We’re gonna get into the state of the venture debt market. Of course, I wanna get into Manat, what you’re doing there. Also, your involvement with the Venture Debt Conference in general and what you’re doing with the deal flow event skies.

And but before we do all that, let’s start with what we like to call our mission matters minute. So, Troy, at Mission Matters, our aim and our goal is to amplify stories for entrepreneurs, executives and experts. That’s what we do. Troy, what mission matters to you? Yeah, great. Thanks Adam. So at Monat we’re a multidisciplinary firm of lawyers and consultants and representing clients in banking and entertainment, government in industries like healthcare and financial services, media technology and beyond.

I. Our goal is to be a the best service provider to our clients that we can be, and really to be their trusted advisor. My personal mission is to represent lenders and the companies that they’re lending to in the venture lending space. We’ll talk more about that and really to be that same trusted advisor to those lenders and when we’re representing companies to those companies as borrowers.

That’s awesome. I like bringing mission based individuals to, on the line, to share why they do what they do, how they’re doing, and really what we can all learn from that together. So, so we all grow. So before we get into Manat though, and I guess, and, and also kind of the conference in general, where’d all this begin for you?

Like, like how’d you get started? Were you growing up and you’re like, man, I’m getting into venture. This is that, was that what you were talking about in elementary school? Gimme the dirt man. Nope. Like every other little kid, I wanted to be a fireman or a professional baseball player. And, and the truth of the matter is I described myself as an accidental lawyer.

I went to undergraduate at uc, San Diego and studied sociology and, and realized that I probably needed to set my sight somewhat differently. Mm-hmm. I decided to go to law school ’cause it was three years and I knew I could probably handle three years and. Got out and, and got a job as a Chapter 11 restructuring lawyer.

As a bankruptcy lawyer, and I loved it. It was fast paced, it was interesting, it was exciting, it was scary, and most importantly, it was fast paced in both a transactional practice and a litigation practice. I like to say that we would work on the deal in the morning and we’d go fight about it in the afternoon, in the courthouse.

And after a time after I made partner at my first firm as a chapter 11 restructuring lawyer, I got recruited internally into what we call the venture lending practice. Mm-hmm. And that was 25 plus years ago, and I’ve been doing it ever since. And I, I bring the experience and the expertise as a restructuring lawyer into the engagement with lenders on loan origination work.

And, and so the, the former influences the latter on a daily basis. And as we have. You know, blips in the economy, blips, we’ll call them. Mm-hmm. Oftentimes that restructuring expertise comes even more in handy as we work with lenders. Mm. So that’s how I got to what I do now, man, I’ll tell you, I I think you’re the first person that’s referred to themselves that I can remember.

I’ve done over 6,000 interviews that that referred to themselves as an accidental lawyer, and I’ll tell you why I love this. Brand his title. ’cause my last book I refer to myself as an accidental entrepreneur. I’m like, I never knew. You think I, I thought I wanted to be a podcaster or do this today. You crazy.

I we’ll have, I know that was a thing. Was it a thing? I don’t even know. Right. We’ll have to team up The accidental entrepreneur and the accidental lawyer. I’m sure. Hold on. So the Accidentals, is that a duo we’re taking? Sounds like a band. Does sound like the accidentals. We started by accident. Stop. Oh man, I’m in.

First off, what attracted you to stay in that space? So you mentioned your recruiter even before Manad, like what was, you know, law, there’s a lot of different things you can do When you hit that, what, how did you, was it a buildup? Was it like instant? Like how did you know that was gonna be your thing or your niche?

You know, I got a job at a firm. They had two spots left in terms of practice area. Yeah, true story. One was litigation, one was restructuring, and they said to me at the interview stage, what do you want to do as an accidental lawyer? I essentially flipped a coin bankruptcy. That’s how I decided. Wow. And I’ll tell you what, I got very lucky.

I had mentors. Yeah. And I mentor and I mentor other people. I was taught and trained how to be a chapter 11 restructuring lawyer. It, I didn’t know it, but it just suited my, yeah, my personality. That vast pace that, that. That, you know, intellectual curiosity and stimulation. And, and as I say, you know, then I got recruited internally at the firm where I was at the time into the venture lending practice.

Mm-hmm. And that too was a great fit for me. Yeah. I’ve been very fortunate to, to work with people who I get to consider friends. I’m a service provider. I know that first and foremost there, there are a number of us, but I’ve been fortunate to. Spend time working with people and developing friendships, professional and personal, that have them continuing to call me and my team.

And so I’ve been fortunate enough to build a team over time and to continue to work with those lenders. And as I say, both in terms of the, the loan origination, the making of the loan, and the first instance, and then the workout, the work through the amend and pretend forbid, the restructuring, the bankruptcy, all that kind of stuff, sort of.

You know, the entire life cycle of a, of a lending relationship transaction. Hmm, that’s interesting. So essentially, you know, pretty much your correct if I’m wrong, your whole career, it was kind of leading that way and you’re, you’re still there. Yeah. Like, I mean, in terms of the niche, that’s amazing. I. Yeah.

I, I, I consider myself fortunate. I’ve had a great run. Yeah. I’ve worked with a lot of great people. I’ve worked with a lot of, you’ve seen a lot of cycles. You’ve seen a lot of cycles too. Seen a few cycles. We’ll talk about that at the Venture Debt Conference for sure. Yeah. Speaking of that, that’s a, that’s a great transition.

Thank you, man. Venture Deck Conference podcast. We’re, we’re getting into that too. That’s the thing. So what’s your, I i, i, I believe, correct me if I’m wrong, you’re gonna be doing, hosting some panels. You have a colleague as well that’s gonna be doing like gimme a little bit of a. Feel for the, for the content.

Yeah, for sure. So, exactly right. I’ll be moderating a panel that’s entitled Two Years On What’s really Going on at the Venture Banks. It’s gonna focus on what I’m calling, sort of debunking the myth and mythology of what’s going on at the venture banks. Are they making loans? Are they not making loans?

What’s really happening on that sort of, and I, I don’t like the word, but that ecosystem. More broadly, my colleague, Haley Fiala will be hosting a separate, moderating, a separate panel that’s really focused on the global growth economy, really focusing on venture lending in the uk, EU, and beyond. With participation from.

Folks in the lending space in those geographies and, and including Israel, including the uk, Germany, et cetera. Mm-hmm. So we’re really looking forward to it. It’s a great audience and it’s a great opportunity to network with our, our friends and our colleagues and our clients, and meet some new people, et cetera.

Now, Troy, you said debunking myths, man, you know, you know I’m gonna need at least one myth to be debunked. Like I’ll have to now, and I know for everybody watching. Okay? This might be, there’s no spoilers. Come on. The, the, the panel hasn’t happened yet. What’s a myth that you hope gets debunked? You know, it, it, so, so look, one of the myths is nothing has changed or the converse, everything has changed and since when, right.

So there’s some context to this. You, you may recall in 2023 SVB, Silicon Valley Bank mm-hmm. Was taken over by the Fed. Ultimately sold and is now part of First Citizens. And there were some other banks and there was a banking crisis that went on and in the venture banking space, which is a unique space.

So this isn’t, this isn’t a translatable sort of across the landscape, but it is a microcosm. The venture banks sort of split up, or at least a lot of the people who were part of Silicon Valley Bank, part of some of these other banks signature, et cetera. First Republic went elsewhere and brought their business elsewhere, and in 2023 when we had our first venture debt conference, about two weeks after that.

Late in March that happened March 10th. The thought was that the big winners of that banking crisis, and we didn’t know how far wide it was gonna be. Mm-hmm. Were gonna be the private credit providers, the non-bank lenders, into the venture lending space. Mm-hmm. And that’s a myth, A myth that we got wrong, that the venture lenders, the private credit providers, were gonna be the big winners.

I think they would tell you friends of mine, others in this space. Mm-hmm. Like it didn’t really work out the way that we thought it would. I think there was another myth that, you know, gosh, the companies are not gonna have places either to park their deposits or to provide them lending facilities. And while it.

The landscape has really, really changed. I think we’re, we’re back to this era. I was just talking to actually one of the guys on my panel panel, Mike Letterman at Bridge Bank, and we were talking just Monday about the fact that he’s now seeing potential borrowers of his looking at five and seven term sheets from venture banks and he’s competing.

And so this myth that like, oh my gosh, the entrepreneurs are not gonna be able to get funded, I think is entirely wrong. That’s one of the, it’s one of the myths and. You, you know, again, this, this notion that the companies are gonna be the big losers, I think is entirely wrong. That’s, it’s entirely reset.

And frankly, good for, good for all of us. Good for the economy, good for the innovation economy, for sure. Mm-hmm. Of course, now we need a, a public market to start. And participating and engaging because we find that the, the private market always follows the public market. So hopefully that engine will get going as the year continues.

There’ll be more public company investment going on, and greater engagement in the, at the venture capital stage and, and thus greater engagement with venture banks and venture lending. Mm. You, you mentioned the public market or, or I should say the absence of a public market. Why don’t leave that on the table?

Let’s go a little bit deeper. I don’t wanna assume everybody understands that. Like, what, what is that implication? Like, go further, please. Well, you know, you don’t have to read the Wall Street Journal every day to see that the. The companies are not really get going out, getting public at the Yeah. At the public market.

That is, the stock market in its simplest form mm-hmm. Is volatile to say the least, is not terribly inviting for new investment and, and certainly companies are having trouble going out and engaging in initial public offerings, IPOs. Mm-hmm. That’s. Challenging for all of us, even the sort of the little person who is investing in their 401k, which is oftentimes investing in the public market.

Because if there isn’t a robust public market, their 401k stays at a, at a, a steady state as opposed to increases in value over time. And that, again, is a, a microcosm of the greater economy when we don’t have a robust public market. The economy generally, generally not, not. Always, but suffers, doesn’t do as well.

And it’s the same in the venture debt market, right? The, the venture debt market is in part, dependent on a robust public market. In the absence of a robust public market, it is tough, not impossible, but tough to get venture lending deals done. I, I will say though, that there is another myth there to be debunked, and that is, well, gosh, Troy, then without the, without a public market, then venture banking, venture lending must be dead.

Far from it, right? Yeah. This example of a company with five and seven term sheets, and that’s not unique. We’re seeing that a lot. We’re hearing a lot from our venture lending clients that they’re, the competition for these deals is stiff, lots and lots of competition. It’s now a borrowers a buyer’s market.

Again, great news for that innovation economy. We’ll see whether the public market sort of behaves, engages sooner than later. Let’s hope. Are there any other trends in general or just in general that you’re following in the venture debt market? Like, what are some of the things that you’re seeing from your vantage point considering you know, your, not only your tenure, but your vantage point?

Well, the trends that we’re looking at, you know, we, we, the lenders in the space and in part counseled by the lawyers, counseling those lenders in the space. Generally get lessons learned. They don’t really want them, but lessons learned in the downturn of an economy. Yeah, 2023, for example, with the bank failures and before that in 98, 99 and 2008, and for better or for worse, those lessons are often short lived.

Mm-hmm. That is, for example, well, in the venture lending space, well, we should take. Intellectual property, for example, as collateral. The the standard in the market, generally speaking, certainly at the venture bank level is what they call negative pledge deals, meaning the intellectual property of the company is not pledged as collateral and the borrower agrees that it won’t agree not to do that with someone else.

I won’t get into too much of that detail when there’s a downturn. The lenders start thinking, shoot, that’s really a bad idea. We should be sure we have our arms around all of the assets, including the, yeah. And so for a short period of time, after each one of those economic downturns, all of a sudden the market is that intellectual property is being included as collateral.

Well, over time the economy improves and or the competition for lending improves, gets better. Mm-hmm. And, and so all of a sudden then we go back to this phase, this stage, well, we’re gonna not take intellectual property as collateral. Mm-hmm. And I would tell you that we’re there again, that in 2023 when we had the bank failures and we had this, the mythology of the venture lenders, the non-bank lenders, the private credit providers, really filling the gap.

That now being debunked, that hasn’t really happened. There was some period of time where deals were getting done where intellectual property was included as collateral. Mm-hmm. Now we’re back to that same negative pledge thing. So we, so in, in some respects, and another on my, on my panel, Ken Fugate customers bank was saying, as part of our preparation, you know, the more things change, the more they stay the same.

Well, Troy this man, I, I don’t know that I’m going in person yet, but I wish I was, ’cause this panel, man, this is gonna be, this is gonna be good to be a fly on the wall here. That being said, I mean, it’s, it’s been great having you on the show. I learned a lot. I’m sure my audience did as well. I have to ask what’s next?

What’s next for you? What’s next for manup Beth, thanks for asking. Look what’s next. Immediately next is the Venture Debt Conference. Yeah, really looking forward to being the premier sponsor at the Venture Debt Conference in New York, April 10th. I’ve got a great panel. I’ve mentioned a couple of ’em. Mike Letterman and Ken Fugate and Sean Stone at SPB and Sean Linden at Bank of California.

My colleague, as another great panel come out and join us. It’s a great, it’s a great time. It’s a great place to learn about what’s going on in the venture debt space. And a great audience and excellent networking opportunities. Yeah. And Troy, if somebody is watching or listening to this, and if they wanna follow up and learn more about Manatt, how do they do that?

Yeah, so go to manatt.com, M-A-N-A-T t.com. You’ll find our website there. Look me up on LinkedIn. I’m actively engaged at LinkedIn, Troy, Xander, or otherwise you can email me at Tzar first initial last name at man. Fantastic. And for everybody watching, just so you know, we’ll definitely put the links in the show notes so you can just click on it and head right on over.

And speaking of the audience, if this is your first time with Mission Matters and you haven’t done it yet, hit that subscribe or follow button. This is a daily show. Each and every day we’re bringing you new content, new ideas, and hopefully new inspiration to help you along the way on your journey as well.

So again, hit that subscribe or follow button. And Troy, man, appreciate you coming on the show. Thanks so much. Thanks for having me, Adam. Great to see you.