Venture Debt
What is it?
- A form of debt financing that is used complementarily with equity venture financing in priced rounds.
- It is generally structured as a 3-4 year term loan and is regarded as senior debt that is secured by a company’s equity or other assets such as equipment.
- Amount of funds loaned is based on a set % of the last equity raise, typically around 30%.
What to expect?
- Lenders can be looking to receive warrants to purchase company’s common stock as collateral, which is usually calculated as a % of the principal loan amount.
- Interest payments must be paid back with debt where payments are either based on the prime rate or another benchmark.
- It can be arranged much more quickly due to a less intensive due diligence process.
Who should consider
- Companies who seek growth capital but want to minimize shareholding dilution while extending their cash runway.
- These companies tend to have already found product market fit and passed the concept phase, but they require additional funds to finance their operations in the growth phase.
- It is preferable for companies to have a history of positive income and cash flows such that they can remain solvent while utilizing Venture Debt to achieve critical milestones before the next priced round.
How Can Bayfront Help
Strategy Review
Detailed analysis of the Client and advise on value-adding corporate strategies.
Structuring
Detailed analysis of the Client’s capital structure and advise on the optimal proportion of equity and debt.
Deal Execution Management
Assisting in execution of deal processes, most commonly in the form of capital raising.
Information Memorandum
For presenting to different target audience such as lenders, new sales relationships, new client relationships.
Governance Review
To determine the specific governance needs of a company and assist in areas which would minimize risks and help achieve business goals.
