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Accelerating growth with Venture Debt

Early stage, high growth businesses continue to make an increasingly important contribution to the Irish economy in terms of employment levels, exports and innovation. Such businesses are typically cash hungry as they strive to accelerate expansion and reach new valuation milestones. This rapid growth is typically funded through equity from venture capital ("VC"), private equity and private investors, as early stage businesses tend to lack the track record of profitability and cash flow that is required by traditional senior debt providers. For such early stage, high growth businesses that are looking to raise growth capital whilst minimising dilution, venture debt can be considered as an attractive supplementary source of financing to equity.

Advantages of Venture Debt

  • Provides additional capital between VC rounds, which can be used to fund growth or working capital requirements.
  • Facilities can be structured depending on a company’s needs.
  • Generally no covenants and the availability of interest only periods.
  • Cheaper source of capital than equity, with minimal dilution.
  • Adding leverage through venture debt will increase returns to equity investors.
  • Interest on venture debt is tax deductible.
  • Unfavourable valuations can be avoided by extending the cash runway to the next valuation milestone.
  • Liquidity shortfalls arising from delays to the business plan can be mitigated.

Conclusion

Venture debt provides borrowers with significant choice and flexibility when it comes to determining the optimum capital structure that best fits the strategic objectives of management teams and shareholders. As the leading debt advisory team in Ireland, Deloitte Debt & Capital Advisory is well placed to provide unique insight and guidance in structuring and raising venture debt facilities to ensure maximum flexibility, whilst minimising default risk and enhancing shareholder value.

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