Fast growing companies started in Europe or backed by European VCs, active in innovation, internet, technologies and life sciences.

Venture debt is senior, secured and collateralised. Interests and principal are repaid over 3 years on a monthly basis. Warrants are attached to the instruments as well as an option to participate in next round.

Even if we look like it, we don’t invest equity in your company. We partner with Venture capital teams to help finance innovation and entrepreneurship. Our warrants are options that will be exercised when you exit and therefore don’t carry votes. We also receive a participation right.

So the next question is : “are we banks?” and the answer is: “we don’t look like it !” Banks will give you covenants and don’t understand the flexibility and uncertainty that young companies face. They will require you to be profit making & might put the company in bankruptcy instead of supporting you in the toughest moments.

1. When the company is growing fast. 
   
2. When next round will be at a much higher valuation.
   
3. Right after a round, to complement the equity without too much additional dilution. 
   
4. When founders and investors expect future success to be strong and therefore would like to avoid a pricing event today. 
   

In all this cases founders and investors are trying to postpone next round or manage the amount of equity to limit their dilution as much as possible.

1. When the company is not really growing. 
   
2. When the founders know they will not be able to pay the monthly repayment of interest and principal. 
   
3. When next round and liquidity is uncertain. 
   

In these cases it is less risky for the company to take a bridge loan from existing investors under the form of a convertible, in case of success existing investors will convert into equity, which is more dilutive than venture debt.

The VD is amortized over 3 years, therefore the effective duration of the runway extension is 18 months. If you are a fast growing company, your valuation will be much larger in 18 months.

As a rule of thumb, VD equity-like component only represents 1-1.5% dilution versus 10-20% dilution in a specific round. Hence your dilution is 10-20x smaller ! For super fast growing companies, the impact is even greater. Google had venture debt in its A and B round, which saves the founders and investors a couple of billions in value...

Let’s take a simplified example:

• Imagine you are raising a $10M round @ $50M valuation today. The company gives 20% of your equity away, and founders and existing investors keep 80%. In 5 years, if the company exit at $350M valuation, this 80% are worth $270M if we assume no further round in between.
  
• Now imagine you raise $2M venture debt today instead of the full round. But you delay the round by 18 months, to let the company grow further. And then you raise the remaining $8M at a slightly higher valuation of $70M. Founders and investors in this scenario give away 11.4% of equity + c. 1% of venture debt. Therefore keeping 87.6% of equity for themselves. At $350M exit this is worth $306M. In other words, using venture debt help gain $36.6M !
  

Your investors don’t want to price the round because they know that you are fast growing. If they make a round today, they will have to justify the valuation jump once they help you raise a much larger round.
Your investors would love to avoid dilution and wait for another 12 to 18 months before bringing new investors in the company. Their carry & returns are directly impacted by how they can manage the timing of next round. And they would rather wait until your valuation is X2 larger than today. It means more performance and more carry.
Your investors want to complement the round with more forms of financing because they want to push marketing and growth.
Your investors want you to be in a better position while negotiating a sale and they want to avoid management to be diluted further to avoid diverging incentives.

Your board members and your CFO want the best for the company. Debt is cheaper than equity so by using VD, they are actually lowering the cost of capital of the company.
And if in additions your board members & CFO are also shareholders, please refer to “the reasons why your investors will like VD”

In the US, for each $10 of venture capital money invested , you have $1 of venture debt. It is a widely used financial tool. US Venture Capital funds are very sophisticated on how to optimise their carry. Europe has historically been less developed in terms of venture capital. But this is changing. Our first generation of successful tech and internet entrepreneurs are starting their second or third company and sometimes their own founder venture fund. Sometimes they used venture debt before. They are fueling the venture ecosystem. We believe Venture Debt will start to play a bigger role in Europe too.