why use venture debt?
Capital efficiency is important for any size company. Funding a growth venture exclusively via equity is unnecessarily expensive and often entails heavy dilution. Tactical use of Venture Debt can extend the working cash of a growth company allowing it to comfortably reach the next important milestone when valuations are higher or a Buy Out can be realized.
The example above illustrates the path of a high growth venture in the life science sector in its quest to commercialize its product (Milestone 2) before agreeing its Buy Out by a major pharmaceutical company. Management foresaw running out of operating cash before this critical milestone was reached. This would have required a painful "emergency" fund raising effort as valuation levels were still low (€6M) and risk perceived to be high.

A comparatively small Venture Debt loan (€1M) could extend the cash runway for the clinical trials to conclude positively, allowing the venture to comfortably reach its next milestone and demonstrate to future investors that a much higher valuation (€16M) is justified. Once the loan was repaid there was no equity dilution.

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