How Bootstrap built senior-secured credit with capped downside and unlimited upside — a decade before the Private Credit BDC model broke.
Bootstrap Europe's Q2 webinar — "Making a 10x and 3x on a credit fund while being a senior secured creditor" — takes place on Thursday, 4 June 2026 at 15:00 CET, hosted by Managing Partners Stephanie Heller and Fatou Diagne. Register here →
Apollo Global Management has recently been in talks to sell its $3 billion publicly listed business development company. Defaults inside that fund doubled in a single quarter, to 5.3%. The firm's direct origination gross returns have collapsed from 2.6% a year ago to 0.5%. Its private BDC was faced with redemption requests for 11% of its shares.
From the onset, the recent headwinds in the private credit space may just be temporary. But I believe they point to structural issues with the business development company model. Understanding what a BDC is — and how it generates returns — is the starting point for understanding why the market reacted so heavily.
A business development company, or BDC, is a US regulatory structure created in 1980 to channel investment into small and mid-sized companies. Like a REIT, it is an investment vehicle where investors can participate in private markets. In practice, that has made the BDC the dominant US vehicle for direct lending — senior secured loans to middle-market companies that traditional banks have stepped back from financing.
The BDC market has grown enormously over the last fifteen years — from a modest niche in the wake of the 2008 financial crisis into one of the central channels of US middle-market credit, with assets under management now in the several hundred billion dollars. Two forces drove the growth: the post-financial crisis retreat of regional banks from middle-market lending, and the appetite of retail and high-net-worth investors for yield through the long zero-interest rate era.
The BDC originates or acquires senior secured loans to mid-market companies, collects coupon income, distributes most of it to investors as dividends, and reports a net asset value based on quarterly valuations of its loan portfolio. The investor's total return is the dividend yield plus or minus any change in the underlying loan values. That structure was unproblematic in 2017–2022, when defaults were exceptionally low and growth was steady. It becomes problematic when the cycle turns.
The four symptoms in the headlines this quarter — rising defaults, NAV markdowns, share-price discounts, redemption requests — are all pointing to the same structural issue. As the Wall Street Journal reported, investors in BDC funds lined up to exit at NAV, forcing the manager to sell performing assets. Blue Owl Capital Corp quickly lost 25% of its net asset value.
The fundamental flaw was built on a simple idea. It worked for the better part of a decade because the cycle was strong. It is failing now because the cycle has turned. Apollo's announcement of daily valuations across its $800 billion credit book is being reported as a sign of strength. In fact it is more like a concession to current investors looking for a way out. The BDC segment does not compensate for the dispersion of outcomes — and dispersion is exactly what lending into technology growth produces.
"Private credit's recent headlines may look like separate issues — defaults, markdowns, discounts, redemptions. They're not. They point to one structural issue: capped upside and uncapped downside."
10–12% cash interest paid monthly plus fees. Senior secured coupon income — and more competitive alone than what the largest BDC platforms now deliver.
Equity exposure through warrants equal to 10–12% of loan principal, exercisable at exit at the company's last financing round strike price.
When a borrower exits at a high multiple, the warrant converts into a cash payout sized to equity appreciation. One unicorn can cover several defaults.
Bootstrap Europe was founded in 2015 by Stephanie Heller and Fatou Diagne — one of the rare women-led GPs in European credit — on a deliberately inverted premise. The firm's classic deal is a senior secured loan of €1m – €25m to a European technology growth company, with a 36–48 month maturity and principal amortisation throughout. The targeted return is approximately 20% IRR, constructed from three distinct components.
The first component is a cash yield of 13–15% — 10–12% cash interest paid monthly and other fees. This is the same type of return a BDC investor receives: senior secured coupon income. Critically, this piece alone is more than competitive with what the largest BDC platforms are now delivering. Apollo's reported 0.5% gross return on direct origination versus Bootstrap's 13–15% yields speak volumes.
The second component is equity exposure through warrants and exit fees, contributing an additional 5–7%. Warrants are issued by the borrower as part of the loan agreement — the right to acquire shares at the last financing round's strike price, exercisable at exit. For the borrower, issuing warrants is materially cheaper than raising more dilutive equity. For Bootstrap, they are the asymmetric upside.
Lending into technology companies produces dispersion. A number of borrowers may default, but the majority of loans perform and repay. A small number may become unicorns — and Bootstrap's warrants capture those outcomes specifically. When a borrower exits at a high multiple, the warrant converts into a cash payout sized to equity appreciation since the last financing round.
Across more than 100 loans committed over a decade, Bootstrap's realised loss ratio is 0.7% — among the lowest in European private credit. Recent realisations validate the model: a Danish biotech merged with a US counterpart and returned 3× the forecast debt-only IRR. A German startup repaid ahead of schedule at over 20% IRR. Monzo's acquisition of Habito returned equity-like multiples to Fund II investors.
"In the Bootstrap Europe model, one unicorn warrant can cover several defaults and still lift fund returns above what the coupon alone produces."
The ~20% IRR target is therefore not a higher-risk version of the BDC return. It is a differently structured return. Same senior-creditor seat at the table. Plus an equity option the BDC investor never owned.
"The ~20% IRR target is not a higher-risk version of the BDC return. It is a differently structured return. Same senior-creditor seat. Plus an equity option the BDC investor never owned."
The flight to quality in private credit is real — and some managers were built for exactly this cycle. Bootstrap Europe is positioned as a top specialist in this expanding market, with a portfolio diversified across the most resilient European technology subsectors and an anchor LP base that has already made this judgment.
"For institutional LPs the question is no longer whether private credit will continue to deliver. It is which private credit segment will endure over positive and negative cycles, and continue to deliver risk-adjusted returns."
Fund IV — Open to Institutional & Qualified Investors