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Last year, Wall Street finance firms started making loans, using video cards as collateral — that famously long-term asset class that solidly maintains its value over, ooh, months. Investment bankers and hedge funds got in on the action too. [FT, archive; Bloomberg, archive]
AI bubble companies want the money so they can buy more Nvidia cards. I’m sure it’ll be fine.
The venture capitalists are diving into this wonderful market. 38% of this year’s venture debt borrowers have been generative AI and machine learning companies.
Venture debt lending was $27.4 billion in 2023, which near-doubled to $53.3 billion in 2024. VCs have lent out $30 billion just in the first half of this year. [Pitchbook; Pitchbook]
Venture capital investors really want some cash back, thanks. And the nice thing about loans is that they pay interest in the near term.
The VC guys are making deals so they can say they made a deal. It doesn’t matter if they’re lending against an asset made of fluff. It’s bubble economics. The loan itself is a great big asset on the books. Number goes up!
What if it all goes wrong? That’s OK! In a bankruptcy, creditors get paid first — they’ll get what’s left of the money those other venture capital firms invested in the companies. So if you can’t invest, lend.
But also, all of this is a bubble and everyone knows it’s a bubble. Forget the future — right now, they can’t make plans past lunchtime. This morning, it’s a good deal. This afternoon, ehh, that’s this afternoon’s problem.
