What is a Venture Lending?
Venture Lending is financing provided to a company to be repaid over time (amortized) or at the end of a specified period (balloon). Such loans are usually offered to revenue stage high tech companies.
In return, Venture debt providers receive an equity kicker to compensate for their risk. Collateral, in form of a floating charge on the company and a specific charge on the company's IP provides downside protection. Because this type of financing incurs significantly less dilution, it can be less expensive in the long run than financing your operations entirely with equity funding.
What is a Plenus Venture Loan?A Plenus Venture Loan is typically in the range of $2-10 million, granted for a period of up to 36 months where the company's assets and IP are used as security. This facility is tailored individually for each company to suit its specific needs. Plenus portfolio companies are revenue stage companies from versatile sectors such as Internet, Media, Semiconductor, Communications and Medical Devices that are backed by top tier VCs. We focus on Israeli and Israeli -related companies that have the potential to become market leading companies.
When is it the right time to take on a Venture Loan?Typically companies need to raise equity in order to fund their development and growth. Venture Loans can be instrumental in ensuring that a company reaches an important customer or product milestone by extending the runway to achieve those milestones and enter the next equity fundraising event with a better valuation. Once a company has products in the market, and it is growing, Venture Lending should be considered, alone or in combination with equity.
Venture lending is appropriate at the following times:
- As part of a funding round. Rather than raise $10 million in a funding round, a company can raise $7 million in equity and $3 million via a Venture Loan.
- As an extension to its runway. Sometimes, a company estimates that it will need to raise another funding round in one year, but would like to extend that timeframe to two years.
- As working capital. A company that has sufficient operating cash, but needs cash for working capital, can extend its resources via a Venture Loan.
- As the last round before an exit instead of, or in addition to, an internal round. The exit amount is fixed and investors/entrepreneurs will receive roughly the same amount with less investment on their part if they take a venture loan.
What should companies look for in a venture lending facility?
First and foremost, a company should have a clear picture of its cash needs and its timing. Best practice is to perform a detailed cash flow analysis of the company's expected cash flows (plans) with the loan superimposed, taking into account fees as well as interest. Once this analysis is performed, the company can compare the bottom line to determine how much more cash the company would have (compared to the original plan) when the company needs it most. In addition, this analysis enables determination of if and for how long, fundraising can be delayed. Also interesting to see is how much of the loan, net of fees and interest, is still outstanding at the point of minimum (or $0) cash in the company's original plan.
What should companies look for in a Venture Lender?
A Venture Lender is a partner to the company, and as such should be able to provide you with the knowledge, resources, support and flexibility to achieve growth. For over a decade, we have been providing Venture Loans to the Israeli market and we pride ourselves on long terms partnerships that are based on the companies' recognition of the powerfulness of this financing as well as the fund's professional guidance.
Commitment to the market and to the company is also a key characteristic to look for in a lender.
A domestic lender will always be supportive of its home market. Same as the lender will perform due diligence on the company, the company should also research the lender's track record, reputation and history of support in good times and bad.