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What are the most competitive sources of debt financing secured by a portfolio of startup new ventures?

As majority of banks lack the capacity or inclination to evaluate the collateral value of a portfolio of interests in private companies, which are in varying stages of development, nontraditional and nonbank sources would be more probable sources for this type of finance. Which are the best ones to consider?

Answers

Topic Expert
Kent Thomas
Title: Founder
Company: Advanced CFO Solutions
(Founder, Advanced CFO Solutions) |

There is not an easy answer to your question. Whether bank or alternative debt financing source, all potential lenders will look to either collateral or cash flows to assure repayment of their loan. When you consider equity interests (especially minority interests) in private companies, unless those companies have considerable value outside of a theoretical sale / liquidation (i.e., they are producing positive profits and cash flows), it will be difficult for anyone to value them in such a way that they can be considered collateral for a loan.

If any of your portfolio companies have bona fide receivables, you have the option of securing a factoring line, based on the quality of the customers who own the money. These can typically be secured with 80% + advance rate on the receivables but will be more expensive than a traditional bank line of credit or term loan. Short of these options, you will most likely be left with a guaranty of the holding company, assuming it has sufficient value and cash flows to repay the loans and/or personal guarantees of the owner(s).

Roland Allred
Title: Controller
Company: Enpower Corp.
(Controller, Enpower Corp.) |

If you expect to create new jobs within a 2 year time frame, then perhaps you should consider EB-5 financing. Technically this is a visa program that allows foreigners to invest in this country to create jobs and then the foreigner can receive a green card. The focus is more on job creation than evaluating the collateral of a portfolio companies. Check it out at:

https://www.uscis.gov/eb-5

Gary Honig
Title: President
Company: Creative Capital Associates Factoring Co..
LinkedIn Profile
(President, Creative Capital Associates Factoring Company) |

Debt financing using a "portfolio of start up ventures at various stages." Short answer - there isn't a lender set up to do this. Certainly not an institutional lender. There are individual alternative finance companies who might consider a loan, but it would really be based on the strength of the holding company, it's revenues, and the value of its Guarantee. If the holding company is really strong it could qualify for mezzanine financing that it could then use to prop up various parts of its portfolio.

Finance tools like factoring would be available to some of the startup entities that have arrived at revenue stage, but not as a total group of companies as a portfolio.

We have had experience with this very scenario funding one of the startups within a group.

But this question seems to be based on "interests in" companies rather than "ownership of," so the chances are even slimmer.

Jon Placa
Title: Director of Finance and Operations
Company: NarrativeDx
LinkedIn Profile
(Director of Finance and Operations, NarrativeDx) |

Venture Capital.

Venture Capitalists will invest in pre-revenue startups using Convertible Debt, typically with a certain interest (8 % per annum) and discount-rate when the debt converts (20% on the dollar).

Convertible debt enables the startup to quickly raise funds without having to have official company valuations and/or funding rounds - money can be raised on the fly.

NOTE: depending on the Convertible Debt, it may trigger during a certain date or when the company reaches a particular valuation.

EMERSON GALFO
Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

You never did state the purpose of the debt financing.

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