This post is not about the pro’s and con’s of raising venture debt for startups, it is about how to go through the process of deciding whether to take venture debt at all – and how to do it.
Each company is unique and I have seen venture debt extend a company’s runway enabling them to get to cash flow b/e without founders taking any more dilution; and I have seen companies not hit their plans and the ramifications this means when the note is then called. But it is a pretty common instrument and even Facebook took venture debt early on before the cloud existed when they needed to buy servers. And in my experiences with the lenders that we have worked with, they are always much more flexible when covenants are close to being breached or when there is a workout situation than your typical risk averse banker. They also tend to work quickly and will be ready to give you a termsheet in under two weeks after your first meeting. Continue reading →