Why You Don’t Need a Brand Name VC to Raise Venture Debt

Traditional venture debt is all about the sponsor. Who are they, how much money do they have, how much did they invest in you and how much did they say you are worth? This particular model of venture debt, though still fairly prevalent in the market, is not the only model out there. Over the past several years, many funds have begun to branch out, looking beyond who your sponsors are and how involved they are. These funds have seen value in underwriting the business itself as much they do the investors behind it.

Companies with considerable investments from mega-funds like Sequoia or Kleiner Perkins tend to stay with the traditional venture debt players like Silicon Valley Bank. However, there are many opportunities within venture debt financing for companies that have not raised from major VC funds or any funds for that matter. At 5th Line Capital, our specialty has evolved into focusing on sourcing and structuring debt financing for companies without the big-name VCs. This has afforded us insight into how these funds look at opportunities.

Over the last few years, we have continued to see more funds arise that are actively looking for alternatively backed opportunities. A wider pool of lending sources results in more flexibility on terms & structures, lower costs of capital, and more options to pick from as you continue to scale. As you begin to look at non-equity financing options to fuel your growth, consider debt as a solution. Do not assume you will not qualify because your VC is not a brand name, or if you have not recently raised a round. 

Lenders are getting more creative due to the necessity to move beyond the “Sponsor” underwriting model and it is creating opportunities for growth-stage companies everywhere.