Venture debt
Given that cash is the lifeblood of a startup, we believe having this option is critical. Most importantly, venture debt facilities provide a low-cost option for additional capital that startups can choose to use or not. For example, venture debt investors are passive and, as such, do not require board seats or observer positions. Second, the terms of venture debt are much more flexible than traditional debt financing or equity financing. First, in contrast to equity funding, a venture debt facility is non-dilutive and can be secured quickly. It offers several key attractive features over other funding options. In reality, venture debt presents a low-cost alternative financing option for startups. Many entrepreneurs falsely assume that debt financing should only be pursued as a last resort. Once drawn down, venture debt is senior to equity and, as such, is repaid first in the event of an exit or bankruptcy.
VENTURE DEBT PLUS
If the company exercises the option for debt, then a loan is created and that capital plus interest needs to be repaid over time. A venture debt facility is an option for a specified period of time (12-18 months) during which a company can draw down a predetermined amount of capital. What is a venture debt facility and why should I consider it?Ī venture debt facility is a flexible form of financing provided by banks and dedicated venture debt funds to early-stage startups. Here is our quick guide to understanding and negotiating a Series A venture debt facility. At Emergence, we have helped dozens of our entrepreneurs secure different types of venture debt facilities as part of a comprehensive financing plan.
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Despite the surge of activity, venture debt is largely misunderstood even by experienced entrepreneurs. Venture debt financing has increased markedly in recent years as startups have taken advantage of the low interest rate environment.