Gamut Analytics can help you raise venture debt, but what exactly is venture debt (VD)?

It is a relatively new alternative lending solution available to companies in early stage of development or with a venture-like profile.  Venture Debt definition is often somewhat imprecise – some investors use terms Venture Debt (VD) and Private Debt (PD) interchangeably.

 

Venture Debt as the most flexible and tailor-made subsegment of Private Debt targeted both at companies with special needs and to the ones backed by venture capital funds.

Venture Debt:

  • is an alternative to bank lending designed for early stage or smaller companies.
  • is often provided alongside a venture capital transaction.
  • typically provides smaller funding than Private Debt.
  • may ”piggyback” on a previous VC round’s due diligence – therefore the quality of a VC sponsor is vital.
  • typically spans from Mezzanine to structured equity but may include senior or junior debt.
  • is typically used to provide financing of working capital or capex.

As Venture Debt is often provided to the later stage start-ups, it has its own unique properties and use cases:

  • the company can extend its runway to the next equity round or profitability.
  • offers non- or less dilutive financing option to the current shareholders – compared to a VC round.
  • VD may help to boost the growth – in some cases allowing for skipping an equity round.
  • can act as a safety buffer for the cases of company’s growth slower than anticipated – Venture Debt may provide funds needed to get back on track.

Typically, VD investors seek:

  • Ticket: EUR 1m to 10m, (c. 1/2 – 2/3 of a last equity round),
  • Investment horizon: of 3-4 years,
  • Collateral and/or equity sponsor,
  • IRR: 15% +,
  • Warrants on equity or equity kicker (5-20% of the loan),
  • Limited covenants (typically regarding revenue).