Venture Debt

Venture debt is relatively new alternative lending solution available to companies in early stage of development

It is the most flexible subsegment of private debt targeted both at companies with special needs or backed by VCs

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)