Venture debt · 3 articles

Venture debt is a loan against a plan, so the plan gets read first

Venture debt lends to companies that have proved customers will pay but have not yet proved a profit. It sits above every form of equity and below a conventional bank loan, and it is priced accordingly: a coupon, a set of fees and a warrant that gives the lender a small claim on the upside. Because there are rarely hard assets worth much in a sale, the lender is underwriting the equity backers, the use of the money and the cash profile of the business month by month.

I read these facilities the way I read any credit, starting with what the company earns and spends in a bad stretch and which claims are paid from that cash and in what order. The articles here take apart the mechanics that founders and boards tend to skim: where the instrument belongs in a capital structure, what the warrant really costs, and which lines of a term sheet move the risk. The aim is general education in how the instrument works, not a view on any company or any market.