Ritchie Capital loaned $5 million to optical manufacturer and venture-backed startup NanoOpto on Monday as the hedge fund slowly makes its presence felt in Silicon Valley finance.

NanoOpto has taken $43.3 million in three rounds of venture investment from backers such as Draper Fisher Jurvetson, Bessemer Venture Partners, New Enterprise Associates, and Morgenthaler Ventures (see NanoOpto Closes Series C).

The startup is a spinout of Steve Chou’s research lab at PrincetonUniversity. Its chairman is Ed Zschau, a former California Congressman turned Princeton professor. The firm is headquartered in Somerset, New Jersey.

The company’s innovation rests in its ability to build nanoscale optical elements that could be an integral part of next-generation communications networks.

NanoOpto CEO Barry Weinbaum is a former Lucent Technologies executive.

The financing is the first announced loan out of Ritchie Capital’s $200-million venture debt fund. The fund targets high-growth companies with defensible intellectual property for loans between $1 million and $5 million.

Ritchie Capital hired Bill DeMars and other members of GE Commercial Finance and then launched the fund at the end of September (see Hedge Fund Jumps into Venture Debt Investing).

On the Hook

More startups have been turning to venture debt firms as they allow the startups to get cash without having to give up shares of stock. The only catch is they are on the hook to pay off the loan (see Going Into Debt).

But Ritchie Capital’s new fund, and a growing trend of hedge funds lending to startups, has drawn criticism from traditional venture debt investors in Silicon Valley. For venture debt firms, the hedge funds mean competition in an area where there was once very little (see VC Debt Firms Hit Hedge Funds).

Tom Vertin, a division manager at Silicon Valley Bank, said at a recent conference he fears hedge funds in the short term will make poor investment decisions.

“There will be something to correct that,” said Mr. Vertin. “It’s unsustainable.”