Element Finance raises $32 million for its DeFi fixed rate protocol

Element Finance has raised a $32 million Series A round at a $320 million valuation. The company has been building a new DeFi (decentralized finance) protocol on top of the Ethereum blockchain. It lets you earn predictable returns on investments thanks to fixed rates over a predetermined period of time.

Polychain Capital is leading today’s funding round. Other new investors include Republic, Advanced Blockchain, P2P Validator, Rarestone, Ethereal Ventures and their limited partners. Some of the company’s existing investors are investing once again, such as Andreessen Horowitz, Placeholder, A_Capital, and Scalar Capital. Finally, there’s a long list of DeFi builders who participated in the round.

Element Finance is still relatively new as the company launched its protocol on the Ethereum mainnet on June 30. But it has been quite successful already as there are currently the equivalent of $180 million in total value-locked.

Users can currently participate in ten different fixed-rate pools. They can contribute with stablecoins, such as DAI or USDC, with popular (wrapped) cryptocurrencies, such as wBTC, or with sophisticated deriative assets, such as steCRV — steCRV is a token that represents a stake in the Curve ETH/stETH liquidity pool.

While this is already a cool product for individual investors, Element Finance also wants to convince fund managers to invest in an Element pool. The company has launched a treasury management initiative to convince other DeFi protocol makers, funds and institutions that they should allocate a portion of their capital to Element Finance.

In order to guarantee fixed rates, some users can opt for higher returns. They contribute to liquidity pools with variable interests. But in that case you can’t predict your returns at the end of the year.

So far, 9,000 users have tried Element Finance. The company plans to introduce a governance system with different voting vaults and different incentives. With today’s funding round, Element Finance will hire more people across all areas.

Image Credits: Element Finance

As venture capital rebounds, what’s going on with venture debt?

The American venture capital world has staged an impressive comeback from the early months of the COVID-19 pandemic. For a moment, there was worry that startups would struggle to raise for quarters, leading to layoffs, slowed hiring and budget cuts.

But as the pandemic accelerated plans to shift operations online, many startups wound up more popular than expected. Those tailwinds helped the venture capital world get back into its own game in a big way, leading to Q3 being an outsized quarter for domestic venture capital activity.

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As The Exchange reported last week, “How much money was raised by U.S.-based startups in Q3 2020? $36.5 billion, according to CBInsights, $37.8 billion according to PitchBook. [The former data provider] calls the number a seven-quarter high, up 22% from the Q3 2019 number and 30% from the Q2 2020 result.”

This lends itself to a question: What’s up with venture debt during all of this?

Venture debt, in various forms, is a type of capital provided to startups that may or may not have raised equity-based funds, like venture capital. One variety comes from institutions like Silicon Valley Bank, which might provide a growing startup with well-known backers an additional fraction of its last raise in debt, allowing the young company to take on more total capital than it otherwise might without greater dilution.

Other forms of venture debt, like revenue-based financing, share startup income streams to repay borrowings. And there are other, more exotic forms of the capital source.

I’ve been curious about the space for a few quarters now. So, when some survey data on the venture debt market from Runway Growth Capital came in, I started collecting my notes into a single entry.

Venture debt has a place in today’s market, but while venture capital is back to setting records, it appears that its less-known sibling won’t manage to match its last few years’ worth of results, according to new PitchBook data. Let’s talk about it.

Venture debt in 2020

Runway Growth is a venture debt player that did $41.5 million in “funded loans” in Q3 2020, it told TechCrunch. That’s for your own reference. Its new survey of 493 entrepreneurs who had raised venture capital and 50 providers of startup capital from the VC and lending worlds noted that 60% of founders felt that “venture debt has become more founder-friendly,” which you might think would imply that more venture debt was being used, overall.

That was my read, at least.

From the same survey, two related data points explain why venture debt has a place in the market: 86% of providers felt that “venture debt was key to extend the company’s runway to reach an important milestone,” while just over a quarter of founders agreed. Regardless of who is right on that point, venture debt has seen impressive growth in recent years.

Via PitchBook, here are updated venture debt metrics for the United States through 2019: