A venture debt gets provided by specialized banks or non-bank lenders to venture-backed-up companies to fund working capital such as purchasing equipment. The debt refers to several debt financing products offered to early and growth-stage venture capital-backed up companies. The debt venture, when appropriately structured, provides an attractive financing option since it results in less dilution of equity for entrepreneurs and investors. SWK Holdings is a leading venture debt provider that enables venture capital-backed companies to enjoy the benefits of venture debt. Some of the benefits of a venture debt include:
A venture debt provides growth capital with minimal equity dilution for entrepreneurs and investors. The lack of equity dilution enables the company to maintain its current assets and access more assets, hence enabling growth. The advantage greatly protects against loss of the accrued assets making it a safe debt for the enhancement of the business without any worries. A venture debt dramatically comes in handy to early-stage companies since their repayment capacity is more uncertain than larger, more established businesses. The capacity of a business greatly determines its ability to repay a loan capital and interest.
A venture debt enables a business to enhance its liquidity through the strengthening of the balance sheet. No business valuation is required for a business to acquire the loan as the loan is mainly provided to small businesses with a small capacity. The loans help the business grow, thus improving its capacity and enhancing its liquidity. Therefore, the venture debt companies become stronger financially, which enables them to gather even more assets.
Businesses usually take loans for growth purposes to extend their services to new areas, among others. The loans provide the necessary cash injection into the business to facilitate the requirements for the expansion. Venture debt enables small companies to increase their capital capacity, hence increasing their valuation. The accrued assets and increased revenues take the business a notch higher and bridge to the subsequent financing round at a higher evaluation.
Venture debt provides an extended cash runway to small businesses and enables them to achieve the next milestone. Capital solutions require that companies have a liquidity runway and a realistic path towards their note repayment by executing their business plan. The debts play a considerable role in the venture ecosystem regardless of the short maturities through the runway extension between financing rounds. The extension has a significant impact o the equity dilution and equity investor returns. Capital solutions rely less on the need for future funding rounds, which allows them to provide maturities double the industry-standard length.
Companies that benefit from venture debt realize the achievement of a more balanced and less costly capital structure. The venture lenders expect equity investors to continually support their company portfolio through subsequent investment rounds during the early company development stages. The follow-on investments enable the venture capitalists to maintain their company percentage ownership and protect their VC’s reputation.