Knowledge Centre

Venture debt is an important source of capital for startups. It has been available in the US for thirty years and in Europe for nearly twenty. Despite billions of dollars of venture debt deals funding every year there is surprisingly little information available about these loans. 

We've spoken with CEOs, CFOs and VCs who are highly knowledgeable about tech companies, how they work and the challenges they face. But venture debt is one area where they have a lot of questions. Venture lending is opaque like venture equity was maybe ten years ago. Lenders know a lot more about it than entrepreneurs and VCs. This can't be helpful to companies.

 Knowledge Centre

USES OF VENTURE DEBT

Extending Cash Runway

The classic use case for a round of venture debt is topping up an equity round to extend the cash runway Read More →

The In-betweener

As the cliché goes, the road to success for a startup isn’t a straight path Read More →

The Insurance Policy

The last post covered how a venture loan can provide additional cash runway Read More →

Bridging to Profitability

This is for companies that are almost there. So far the use cases covered have assumed that a startup will continue to raise more equity Read More →

Acquisitions or Capital Expenditures

Large purchases of capital equipment – or even companies – are classic uses of proceeds from a loan Read More →

Preventing a Bridge Round

Ideally, as a startup grows its funding will take it to milestones that allow for more equity to come in a higher prices (what are called up-rounds) Read More →

To Avoid Setting a Valuation

Down rounds (or heavily structured "flat" rounds) are tough. Nobody likes them Read More →

TYPES OF DEBT

Venture Debt

Venture lending is what we do at CLP and I will post a number of topics about venture lending here Read More →

Term Debt

What if a company wants to buy equipment, fund operations or make an acquisition? Read More →

Line of Credit

One way to think of debt types is by the relative maturity – short or longer term. Read More →

The MRR Line

So far we have covered standard types of debt – revolving lines of credit and term loans. Both of these can be available to venture-backed companies Read More →

VENTURE DEBT TERMS: UNPACKED 

Availability

Most lenders will prefer for all of the loan to be drawn at the Closing Date. Exceptions are tranched loans or delayed draws Read More →

Break Fee

The lender will put resources onto closing and funding a transaction Read More →

Costs

The borrower will be responsible to pay its costs plus the legal and out of pocket costs for the lender Read More →

Closing Date

The next several posts will cover general terms of a venture debt term sheet Read More →

Fees

Closing fee
Venture lenders, as with most lenders, will often charge a closing fee Read More →

Maturity fee
Also called a Bonus Interest, End of Term Payment, Back End Fee or Repayment Fee and not to be confused with a repayment fee Read More →

Prepayment fee
This fee is a cost to the borrower for the option of repaying a loan early Read More →

Financial Covenants

A financial covenant is a company performance threshold placed into a loan agreement by the lender Read More →

Interest Rate

The interest rate is the headline number in any venture loan. If the return from warrants is modest or zero the majority of a lender’s return will come from the interest rate Read More →

Last Payment

The standard 36 month amortizing venture loan will ask for the first principal payment at the end of Month 1 and the final principal payment at the end of Month 36 Read More →

Legal Documentation

A term sheet outlines the basic business terms of a deal Read More →

Maturity Date

Often 36 months after the closing date. The loan will be fully repaid by this date Read More →

Observer Status

Best practice for a lender would be to sit as a board observer Read More →

Repayments

Principal and interest payments are typically made each month for 36 months Read More →

Reporting

Venture backed startups – well run ones, anyway – have no shortage of reporting Read More →

Security & Ranking

The term sheet will describe what ranking (typically senior) and type of security (typically all assets) the lender will take Read More →

Tranches

There are times when the lender, or the company, prefer to fund in tranches rather than all at once Read More →

Venture Debt Terms

Despite billions of dollars of venture debt deals funding every year there is surprisingly little information available about these loans Read More →

Warrants

The returns for a venture loan come from two sources – cash (in the form of interest and fees) and equity (in the form of warrants) Read More →