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Latest Venture Debt T's & C's

My company recently raised some VC funds and we would like to augment it with some venture debt. First off, what is the latest on venture debt? The last time I went out for debt things were booming and it was easy to get. I am sure things won't be so easy this time around. Any insight into the current state of venture debt would be appreciated. Assuming this industry is still alive and kicking, does anyone have reasonably recent data points as to T's & C's? E.g. what are the current rates (% over prime or libor), what is the expected warrant coverage, are MAC clauses avoidable, etc.? Finally, does anyone have recommended providers in northern California (or national providers)? There usually seems to be a lot of movement in this industry so I don't know who the players are. Thanks in advance.

Answers

Topic Expert
John Kogan
Title: CEO/CFO
Company: Proformative, Inc.
(CEO/CFO, Proformative, Inc.) |

Jeff, take a look at this resource https://www.proformative.com/og/resource/general-content/venture-debt-proposals-analysis-framework, which is a spreadsheet comparing venture debt deals. It's a few years old (pre-recession) but will give you most of the elements and provides a useful framework within which to do an analysis.

One of the helpful things about this resource is that it has an IRR calculation which you can use to input terms you receive and really analyze the economic impacts on an apples to apples basis. Also, this is the analysis the debt providers do when pricing your deal so it's always nice to know what the other side is thinking :).

You will see IRRs in those cases (which were real bids from major SV debt players) at 11-14%. You will also see a variety of terms (durations, that is), fees and warrant coverage. My historic rule of thumb is that the bigger the debt provider (or perhaps a better way to say it would be, "the more your provider looks like a regular bank") the higher the cash cost of the deal and the lower the equity component, and vice versa. Hope that helps.

Mark Stokes
Title: CFO
Company: Private
(CFO, Private) |
Try the following (been a couple of years so not certain they are all around still): Triplepoint, Dean Riskas, driskas@triplepointcapital.com Leader Ventures, Brian Best, bbest@LEADERVENTURES.COM LIghthouse, Rick Stubblefield, rick@lcpartners.com
Rajeev Seshadri
Title: CFO
Company:
(CFO, ) |

If you think the market is similar that for sub-debt, then the pricing appears to be in the 17-18% range, if you can find providers. Your VC may be the best source.

Topic Expert
Marc Linden
Title: CFO
Company: Intacct
(CFO, Intacct) |

Jeff, you might try asking your outside counsel. I've found most of the larger firms keep tabs on the latest terms in deals they have seen and are willing to share them with clients.

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