Kruze Consulting’s Role in Placing Venture Debt

Fri, 9 February 2018 - Scott Orn

Video: How Do You Get Venture Debt?

If you’re raising venture debt or have questions about it, feel free to reach out to us. We’re experts and happy to help!

What do we do? Typically we start by talking to the CEO and figuring out if venture debt’s a good fit. Sometimes when things aren’t going so well, venture debt isn’t a good fit because all you are doing is adding another creditor into the mix. That can make things messy, especially for the next fundraise. But if things are going well, and especially if you’ve just raised capital, that’s a great time to put venture debt into place and then structure a forward commitment so you can draw down in the future.

When you raise money, everyone loves you, everything’s great so that’s a good time to put venture debt in place. The next thing we do after we make sure it’s a good fit is to make a bunch of introductions. We know everyone in the industry so we send a bunch of emails and line up a bunch of calls and meetings. And that kicks the process off.

We don’t recommend doing too many meetings or making yourself too crazy in venture debt. Typically talking to three providers to start is a good way of doing it. After that, we’ll put together all the information like financial statements, financial projections, cap table, and 409A valuations. Basically, anything a venture lender needs to help make a decision.

At that point, the venture lender’s going to go back to their credit committees and decide if they want to offer a term sheet. Once they offer the term sheet to the startup, that’s when we really spring into action. We’re going to break down that term sheet, explain all the difficult terms to understand, help you understand what that means for your company, project out the additional runway and layer on the milestones that you’re targeting. The extended cash runway is the reason for venture debt and you want to make sure you can accomplish what is needed in the incremental capital you are raising.

Then we’re also going to talk to you about some downside situations. If you’re not executing, what does this debt mean for the company? We’re also going to produce IRR schedules so you know exactly how much it costs. We’re going to help you understand the warrant coverage so you know exactly how much of the company you’re giving away.

After we help negotiate the venture debt with the lenders, we will help the documentation process. Oftentimes there are two or three big terms that are contentious or need to be discussed with lawyers. The lawyers typically do a great job and we highly recommend using experienced counsel. Sometimes the CEO just needs someone to talk to about those important couple terms. Should I give on this? Should I stick to my guns? We’re there for you the whole process and those conversations.

Finally, advise you on when to draw the money down but that’s really the venture debt process in a nutshell. And hopefully, that helps you know how Kruze Consulting can both kick-start the process, help you through the negotiate the process and then help you close the deal.

 

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