The traditional venture debt. Flexible terms and use of money, but at the cost of some equity dilution.
You have or are about to complete a Series A (or higher) fund raising round of at least £1.5mm, with a valuation of your company of at least £5mm.
The purpose of venture debt is usually to top-up an equity raise, in order to:
- Increase the cash runway until the next funding round, and/or
- Minimise dilution incurred during the round
There usually will be no significant covenants on the use of proceeds. We will hold a fixed and floating charge over the business for the duration of the loan and will usually need to the senior-most lender, but may be flexible in allowing other lenders in as long as the business performs as expected.
Timing & Size
Venture debt is usually executed alongside the funding round (Series A, B, etc) or shortly thereafter.
Though the due diligence for Venture Debt is somewhat less extensive than for an equity fund raise, it can still take 2-4 weeks and should therefore ideally lined up alongside equity investors ahead of the round. This will enable you to correctly ascertain exactly how much equity you will need.
At Series A, Venture Debt is usually up to 25% of the equity round, or 10% of the Enterprise Value of the company, whichever is smallest. For subsequent rounds of funding, Venture Debt can be a slightly larger percentage should the company's sales support this.
Establishment Fees: 2-3%
Interest Rate: 12-15%
Duration: 3y (can vary)
The exact details will depend on the company's financial strength and can offset each other (e.g. more warrant for less interest).