Venture Debt refers to any form of debt financing provided to a company that is still dependent on Venture Capital (VC) financing to fund its operations. InnoVen Capital’s core offering is a medium term loan to VC-backed companies, depending on the stage of the company, quantum of equity raised and nature of the requirement. Interest rates and fees are fixed for the tenor of the loan. Repayment of the loan principal and interest payments are typically made on a monthly basis. If the borrower is significantly successful through its lifecycle and has a liquidity event in the form of an IPO or a buyout, an equity “kicker” allows the lender to make some additional returns to compensate for the higher risk. InnoVen Capital does not normally mandate the end use for the funds and the company is free to use the loan proceeds to fund any number of uses which may include accelerating product development, key hires, expanding to a new market, making acquisitions, operational working capital or even refinancing. While InnoVen Capital does not take board seats on its portfolio companies, the team is happy to leverage its experience and network across geographies, a large number of companies and investors to assist clients as and when required in their business or strategic pursuits. While InnoVen Capital has a sector agnostic approach, the preference is to partner with disruptive companies in Technology, Internet, Media, Healthcare and Consumer.
What is Venture Lending?
Venture loans are a type of debt financing typically provided to venture-backed companies. Venture loans are generally a complement to venture capital and provide value to fast growing companies and their existing investors by minimizing equity dilution when raising new rounds of capital. Unlike traditional bank lending, venture loans are catered towards startups and growth companies that do not necessarily have positive cashflow or hard assets to use as collateral.
When is the right time for taking a Venture Loan?
The target market for venture loans is typically when a company is generating revenue but does not have the years of operating history to obtain a traditional bank facility. Venture loans are generally taken alongside an equity financing round and can play a significant role in reducing equity dilution for founders and existing shareholders.
What are the typical uses for a Venture Loan?
Borrowers are not typically limited in the way that they use venture loans; the loans can be used towards financing growth, cushioning for the unexpected, general corporate purposes, funding to profitability and financing acquisitions. The benefits of taking a venture loan is to provide funds to accelerate growth, achieve higher valuations and/or cushion for the unexpected. In all cases, venture loans are beneficial for existing shareholders because it allows a company to raise capital without giving up additional equity.
