Venture debt, also known as venture lending, refers to a variety of debt financing products offered to early and growth-stage venture capital-backed companies. Provided by technology banks and dedicated venture debt funds, venture debt generally consists of a three to four-year term loan or equipment lease.
How does venture debt fund work?
Venture debt relies on a company's access to venture capital as the primary repayment source for the loan (PSOR). Instead of focusing on historical cash flow or working capital assets, venture debt emphasizes the borrower's ability to raise additional equity to fund the company's growth and repay the debt.
What does a venture company do?
A venture capital firm is a group of investors who gain income from wealthy people who want to grow their wealth. They take this money and use it to invest in more risky businesses than a traditional bank is willing to take on.
Is venture debt a good idea?
Venture debt is great for financing working capital or operating leverage; it is typically a poor choice for extending runway (i.e. financing headcount, op-ex, etc.). If you're drawing down on the debt in order to finance the former, you're largely smoothing cash flow or levering unit economics that work.Aug 26, 2021
How common is venture debt?
According to Maurice Werdegar, the CEO of Western Technology Investment, venture debt makes up about 10% of the venture market, and it's growing every year. Last year, venture capitalists invested $84.2B in companies.May 13, 2018
How do you structure a venture debt?
A complement to equity financing, venture debt is generally structured as a three-year term loan (or series of loans), with warrants for company stock. Typically, venture debt is senior debt that is secured by a company's assets or by specific equipment.
How do venture capitalists get their money back?
“Venture capitalists make money in 2 ways: carried interest on their fund's return and a fee for managing a fund's capital. Investors invest in your company believing (hoping) that the liquidity event will be large enough to return a significant portion: all of or in excess of their original investment fund.Nov 5, 2017
Do you have to pay back venture debt?
Most venture debt takes the form of a growth capital term loan. These loans usually have to be repaid within three to four years, but they often start out with a 6- to 12-month interest-only (I/O) period.
When should you consider venture debt?
Venture debt is intended for early-stage businesses who have typically raised $5M+ in a single round and is typically made available alongside an equity raise or within a few months of a round closing.
Why is venture debt important?
Using Venture Debt When utilized appropriately, venture debt can reduce dilution, extend a company's runway, or accelerate its growth with limited cost to the business. If utilized poorly or with unfavorable terms, debt can reduce a company's flexibility or become an obstacle to future equity raises.
How is venture debt repaid?
Most venture debt takes the form of a growth capital term loan. These loans usually have to be repaid within three to four years, but they often start out with a 6- to 12-month interest-only (I/O) period. During the I/O period, the company pays accrued interest, but not principal.
What is a venture capital company?
Venture capital (VC) is a form of private equity and a type of financing that investors provide to startup companies and small businesses that are believed to have long-term growth potential. Venture capital generally comes from well-off investors, investment banks, and any other financial institutions.
What is venture capital and how does it work?
Venture capital is a way of raising funds to start a business by getting money from investors, investment banks, and other types of financial institutions. Venture capital is typically monetary but can also include managerial expertise to help the business get started.Jan 16, 2019
What is venture capital example?
The term does not only refer to people but also companies. Google Inc, for example, is a major venture capitalist. Its division, Google Ventures, focuses on venture capital. Google Ventures also has a large European arm, which the company set up with an initial investment of $100 million.