Dangers of Venture Debt
Today we're talking about the dangers of venture debt. Now that sounds really scary. Venture debt's actually a great tool for prolonging your runway and making sure your startup can hit the right milestones.
Venture Lending Common Events of Default
Today we're talking about events of default in venture debt. Now an event of default is when you get put in the penalty box and the lender controls your destiny. They can make you fundraise. They can make you sell the company. You do not want to be in default. So, stay out of default is rule number one.
Fund Venture Lenders vs. Bank Venture Lenders
Today we're talking about fund venture lenders vs. bank venture lenders. Now, banks, they're always really really cheap. They have low interest rates and low warrant coverage and that's partially because they are lending out other companies’ deposits. They take one company's deposits and lend it out to another. That's how banks work in just about everything. So that way their cost of funding is very very low.
Venture Lenders Asking for Right to Invest Equity
A lot of times venture lenders, they're smart. They know when they find a good deal when they've done a loan with a good startup, they want to get a little piece of the equity too.
Venture Debt: Warrant Coverage Upfront or On Usage
Let's talk about warrant coverage in a venture leaning deal, and whether the warrant coverage should be based on usage or commitment.
Venture Debt Scouting Report: Square One Bank
This is your scouting report for Square 1 Bank and their venture debt services.
Venture Debt Scouting Report: Comerica
Comerica is a huge venture lending firm, they've been doing it for a very long time, dating all the way back to when they acquired Imperial Bank.
Venture Debt Scouting Report: City National Bank
City National Bank is a great group to work with. They're led by Rod Werner, who's the consummate Silicon Valley deal-maker.
Venture Debt Scouting Report: Bridge Bank
Bridge Bank has been a venture lender for a long time, but they used to be a much smaller bank. Recently they were acquired by a large bank, so their balance sheet is really big so they can do much bigger deals.
Kruze Consulting’s Role in Placing Venture Debt
All of our clients know to call us but there's a lot of people out there or a lot of startups that don't know that we do this on an ad hoc basis.
Venture Debt Scouting Report: WTI
WTI has been around for I think about 30 years. They're one of the major players in the VentureNet market, and they specialize in doing very large deals and very flexible deals.
Venture Debt Scouting Report: Triplepoint
Triplepoint's a very large fund, a very aggressive lender in the venture debt marketplace.
Venture Debt Scouting Report: SVB
SVB is one of the largest players in the venture debt market. They've been servicing start-ups for many, many years.
Venture Debt Pre-Payment Penalty
Pre-payment means that you're going to pay back your loan early. You know, typically, when a venture lender makes a deal, they project out the total interest they're going to capture over the life of the loan, and that's their return.
VC Liquidation Preferences
For those who don't know, a liquidation preference gives a venture capitalist the right to get their money back before other shareholders.
Minimum Cash Requirement in Venture Debt Deals
A minimum cash requirement is something that usually a bank will ask the company to do.
Material Adverse Change as Event of Default in Venture Debt
Material adverse change clauses, or MAC, is the one term you do not want to have on your term sheet.
Funding MAC (Material Adverse Change) in Venture Debt
We talked about MACs as an event of default. You definitely want to avoid those. But almost equally dangerous is the funding MAC.
Final Payments in Venture Debt
The idea behind a final payment is that the lender will backload some of the interest.
Why Do Startups Take Venture Debt?
At Kruze Consulting, we get tons of questions about venture debt. Should a startup take it? Is it good for the startup?
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