Thu, 23 September 2021
Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.
Venture debt can reduce dilution and give your startup more runway. Here are a few pointers to see if venture debt is a good fit for your fundraise:
It’s often used with equity funding for purchasing equipment, making acquisitions, or making up for funding not acquired through the equity raise.
If the company is in a difficult cash position, then venture debt will come with higher interest rates.
If the proposed debt payments are higher than 20% of operating expenses, then it may not be a good fit.
If the company has stable revenue and predictable receivables, then a line of credit may be a better choice than venture debt.
Some tie venture debt to the company’s cash or accounts receivable.
Covenants around venture debt such as ‘material adverse change’ can trigger a recall of the debt early.
It helps to understand how the lender performs. Check their past history to find out more.
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