Venture debt or venture lending (related: "venture leasing") is a type of debt financing provided to venture-backed companies by specialized banks or non-bank lenders to fund working capital or capital expenses, such as purchasing equipment.
How does a venture loan 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.
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
What is a venture debt facility?
Venture debt or venture lending (related: "venture leasing") is a type of debt financing provided to venture-backed companies by specialized banks or non-bank lenders to fund working capital or capital expenses, such as purchasing equipment.
How does a leasing business work?
Leasing companies allow lessees to increase their cash flow, and eliminate the need for users to pay large amounts of cash upfront. Leasing companies also allow lessees to use items without incurring debt. Because a lease is usually classified as an expense and not as a debt, lessees are able to keep their credit high.Sep 26, 2017
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.
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.
Do venture capitalists offer loans?
Venture debt is a type of debt-based financing. Venture-backed companies often seek these loans between equity rounds, or to finance specific opportunities. ... So, founders don't need to give away sizable percentages of ownership in their company—one of the distinct advantages of venture capital loans.Sep 8, 2020
What means venture capital?
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.