About Venture Debt
Venture debt is a type of loan offered by lenders that is designed specifically for early-stage, high-growth companies with venture capital backing. Venture debt is a term loan issued to startups that have raised venture capital within the past years.
Venture debt loans do not replace equity – in fact, they follow equity. In comparison to traditional bank loans, where cash flow and other assets are indicators that a startup will be able to repay its loan venture debt lenders focus on:
- primarily on the strength of your venture capital investors and of the founding team;
- your innovation skills;
- your startup’s potential for growth; and
- the possibility that the startup will be able to raise venture capital again.
Venture debt is usually worth 30 % to 50 % of your previous round and unlike venture capital needs to be repaid with interest over the term of the loan.
Minimal dilution for founders
Minimally dilutive and acts like an insurance policy to avoid down rounds.
Cost of capital
Provides lower cost growth capital and is the cheaper equity. Founders can longer hold on to their shares and sell them at a later stage for a higher valuation.
Due to prior due diligence venture debt can be paid faster than traditional financing options.
No complexity added to the board
Only board observer rights are granted to the venture debt provider and thus no complexity is added to the board.
Venture capital comes hand in hand with a high dilution for the founders and the established shareholders.
Founders are selling their shares for a lower valuation; thus, venture capital is an expensive way of raising capital.
Long process for due diligence results in a very slow payout.
Founder loses control
VCs often receive a board seat which adds complexity to the board.
Typical Use Cases
Startups gain more time between their equity rounds to growth and achieve their critical milestones
Retain a larger stake in the startup prior to an IPO or another liquidity event
Reach a Higher Valuation
As venture debt complements venture capital and helps the company to growth in scale, thus a higher valuation is being reached
Company, asset, or intellectual property acquisition financing
Requirements for Startups
For this, we expect from you not only a well-thought-out business model but also a motivated team that works hard and believes in its goals.
Venture Debt at Skyfall
As debt can be a frighting topic for young founders it is important that you do not rush into a partnership but rather choose your partner carefully who you can trust so you remain in control of your company.
We are not just a financing partner; we are more than that! We are here to help founders with our expertise and our capital to fulfil their dreams. Knowing the business from the startup side we are here to work with you through your ups and downs. As venture debt is being paid out often in several tranches and refreshed with additional capital over time it is essential to choose a venture debt provider that can act as a partner through the whole process of growth.
We make sure that you have the capital you need and on top offer 100 % flexibility as we can hold capital reserved for you without you being obligated to draw the loan. That way we help you to make sure that your startup has sufficient financial funds even in case of unforeseen events.
Our team will work with you to develop a financing option that gives you the freedom you need to take the next step.
How does a venture debt structure look like?
Our venture debt product is divided into two elements – The “Loan” and the “Warrant”.
- Our loan is repaid to us over a term of 3 to 5 years.
- Our loan amortizes usually monthly over such a period and has an interest of 10 % to 12 %.
- Our loan is senior and is collateralized with business assets only – personal guarantees from the founders are not required.
- The company grants us a warrant a small equity participation which enables us to participate in the future success of the company. This warrant gives lenders like us the option to purchase a small part of your company, valued at the time the loan was given to you.