Simple concepts re: Venture Debt

Here are a few simple concepts re: Venture Debt. See our other articles to learn more about Venture Debt.

  1. Venture debt is mostly non-dilutive, but lenders often require an equity kicker in the form of warrants or co-investment rights.
  2. Most institutional venture lenders require at least one preferred round of equity financing before providing a venture debt facility (see when is the right time to raise Venture Debt).
  3. Venture debt facilities can take different forms, including single term loans, delayed draw term loans, and borrowing base facilities.
  4. Lenders usually receive a first-priority security interest in all company assets, often excluding intellectual property.
  5. Venture debt financing requires various consents and approvals, such as board and shareholder consent, and subordination of existing debt.
  6. Venture debt agreements contain restrictive covenants and reporting obligations, limiting a company’s ability to engage in certain activities without lender consent.
  7. Lenders may use financial covenants or material adverse change (MAC) clauses to track a company’s performance in line with its business plan.
  8. Companies must have cash flow or other sources of funds to service venture debt, paying principal, interest, fees, and expenses.
  9. For early-stage, pre-revenue companies, lenders may request a personal guarantee from the founders, with varying levels of commitment and liability.
  10. Lenders may require third-party items, such as moving depositary accounts, tri-party agreements, landlord agreements, and insurance endorsements. This became very important with the collapse of SVB (learn more about .

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