In the coming weeks, I’ll be answering the question: what is venture lending? To kick off the series, let’s take a look at some of the types of loans venture banks provide.
Traditional middle market lenders generally require tangible assets to collateralize loans and/or a track record of operating cash flow to qualify for debt — two things that most startups don’t have. Venture banks typically take a different approach. By underwriting to the quality of the technology, market opportunity, management team, investor syndicate, etc., venture banks can provide access to capital throughout a company’s lifecycle.
Let’s look at a few examples:
Funding Need: Additional capital needed to close a Series B or obtain Phase I approval.
Debt Financing Solution: Debt available upon receipt of Series B term sheets or satisfactory clinical trial results.
Cash Runway Extension Loans
Funding Need: Enhance valuation in the next funding round.
Debt Financing Solution: Debt monitored by a performance metric like user acquisition or cash burn.
Growth Capital Loans
Funding Need: Purchase equipment or increase headcount.
Debt Financing Solution: Debt available upon achievement of a certain milestone like releasing a new product or closing a marquee customer contract.
Working Capital Loans
Funding Need: Finance product delivery costs until receipt of customer payments.
Debt Financing Solution: Advances available at 80% eligible accounts receivable, 3-4x monthly recurring revenue, etc.
Funding Need: Acquire assets of another company for synergistic, defensive, or “buy vs. build” reasons.
Debt Financing Solution: Debt monitored by an operating metric like revenue or EBITDA.
The next installment of this series will cover typical terms of debt financing for startups.
The views, opinions, beliefs, conclusions, and other information expressed in this material is not given, verified, or endorsed by Square 1 Bank, a division of Pacific Western Bank. Instead, this material is solely the work of the author, and represents his views, opinions, beliefs, conclusions, and other information he wishes to present, in all cases without any manner of endorsement from or verification by Square 1 Bank, a division of Pacific Western Bank.
This material, including without limitation the statistical information herein, is provided for informational purposes only. The material is based in part upon information from third-party sources that the author believes to be reliable, but which has not been independently verified by the author or Square 1 Bank, a division of Pacific Western Bank, and, as such, we do not represent that the information is accurate or complete. The information should not be viewed as tax, investment, legal, or other advice, nor is it to be relied on in making an investment or other decision. You should obtain relevant and specific professional advice before making any investment decision. Nothing relating to this material should be construed as a solicitation, offer, or recommendation to acquire or dispose of any investment, or to engage in any other transaction.
All material presented, unless specifically indicated otherwise, is under copyright to the author or Square 1 Bank, a division of Pacific Western Bank, and is for informational purposes only. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied, or distributed to any other party, without the prior express written permission of Square 1 Bank, a division of Pacific Western Bank or the author. All trademarks, service marks, and logos used in this material are trademarks, service marks, or registered trademarks of Square 1 Bank, a division of Pacific Western Bank.
Square 1 Bank is a division of Pacific Western Bank, member FDIC.