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Why startups choose debt over equity
Late-stage startups took on record-high loans, the startup bankruptcy with $6 billion debt, and more...
SearchVentures
February 05, 2025
Europe’s biggest year for venture debt
2024 saw the highest debt funding ever for late-stage startups in Europe’s history, with €13.9 billion raised, beating the highs of 2021-2022.
Why did mature startups turn to debt?
This Week’s Trends
Late-stage startups took on record-high loans
The startup that is $6 billion in debt
A16Z closes its UK office and more
Read Time 3 minutes
The Startup Trend
Late-stage startups choose debt over equity
European venture debt for late-stage startups hit a record €13.9 billion in 2024, soaring 216% from 2023 and surpassing the 2021 peak by 25%.
> Lower interest rates and abundant capital made debt a more attractive alternative to equity financing for late-stage startups looking to extend their runway.
> The median debt deal size subsequently increased to an all-time high in Europe, sitting at €1.7 million, as 80.6% of the venture debt value funded late-stage startups.
💡 This trend is likely to be more conservative in 2025, as major players like Northvolt, which went bankrupt in late 2024, won’t be returning to the market.
Startup Feature
Northvolt Burns $15 Billion and Crashes into Bankruptcy
Northvolt was Europe’s biggest bet to break Asia’s grip on battery production. Founded in 2016 by former Tesla executives Peter Carlsson and Paolo Cerruti, the Swedish startup raised $15 billion through a mix of debt and equity while securing over $50 billion in supply deals with BMW, Volkswagen, and other automakers.
Backed by government funding and investors like Goldman Sachs, Northvolt set out to build Europe’s largest battery hub and lead the green energy shift. That ambition collapsed as production failures, financial losses, and missed deadlines drove the startup into bankruptcy. In November 2024, Northvolt filed for Chapter 11, revealing $5.8 billion in debt and just $30 million in cash.
A Billion-Dollar Production Failure
Northvolt was positioned as the key player of Europe’s electric vehicle future. The startup promised to build batteries with a lower carbon footprint using renewable energy and local supply chains. Investors and governments saw it as a strategic asset to reduce Europe’s dependence on Asian suppliers.
The reality did not match expectations. Northvolt's flagship factory in Skellefteå, Sweden, began production in December 2021, but by 2022, it had reached less than one percent of its planned capacity. Northvolt struggled with hiring skilled workers, maintaining supply chains, and implementing efficient production processes. Safety concerns also emerged after a series of worker deaths raised alarms about operational risks.
“We set out to build a sustainable battery industry in Europe, but the challenges were far greater than anticipated.”
Northvolt’s problems deepened as automakers began losing confidence. BMW canceled a $2 billion battery order after repeated delays. Rising competition from Chinese battery giants made it harder to justify the startup’s high production costs.
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A Disaster for Green Tech Startups
By 2023, Northvolt was losing more than a billion dollars annually while generating only a fraction of its projected revenue. With mounting debt and shrinking investor patience, the startup had little room to recover. Filing for Chapter 11 bankruptcy protection in the United States marked the end of its ambition to be Europe’s battery leader. Both Carlsson and Cerruti stepped down from their roles as the battery startup faced an uncertain future.
Founders Paolo Cerruti and Peter Carlsson
“The challenges were unprecedented, and despite our best efforts, we could not overcome them. Our ambitions did not match execution.”
Northvolt’s collapse is a warning for capital-intensive startups in emerging industries. Massive funding and strong government backing are not enough if a startup cannot scale operations, meet delivery targets, or manage production risks. As competition in the battery sector grows, the failure of Northvolt raises concerns about Europe’s ability to build a self-sufficient battery industry and compete with global giants.
It highlights the risk of scaling too quickly without a solid operational foundation and shows that even with billions in funding, execution remains the most critical factor for startups in high-cost industries.
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Headline News
This Week In Startups ✍️
Founders
> Alice & Bob, a french quantum computing startup, secures €100 million to create the first universal, fault-tolerant quantum computer.
> OCELL, a Munich-based climate data startup secures €10 million to create digital twin of forests using artificial intelligence.
> TravelPerk, a Barcelona-based travel platform, raises $200 million Series E round at $2.7 billion valuation.
Investors & VCs
> Andreessen Horowitz, one of the biggest VC firms in the world, is set to close its UK office less than two years after announcing it would set up shop in London.
> Shift4Good, a VC based in Singapore and Paris, has closed its first fund of €220 million fund to target sustainable transport innovation across Europe and Asia.
> Fuel Ventures, has just secured £20 million from two Chinese LPs; Shijingshan Modern Innovation Industry Fund and Zhongguancun Development Group.
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Cheers,
Odin Lund & Hari Mohandas
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