Getting Ready for the Deal

Oftentimes, companies in growth mode start the process of getting ready to fundraise, after they’ve already started. This is most true when it comes to raising venture debt. VC’s are mostly focused on the “vision” and the “story” instead of the numbers and metrics that debt providers focus on. So when it comes time to raise your venture debt in between funding rounds, you need to be sure you have your ducks in a row.

Here are a few key areas in which we often find clients are less than fully prepared to raise their debt round and how we have managed these situations in the past:

Expectations of the market for venture debt for a growth-stage company
Companies in their Seed, Series A and even Series B stage tend to look at debt in the same manner they’ve looked at their mortgage, or an SBA small business loan. Terms are different for small businesses than they are for mid-size enterprises or cash-burning growth-stage companies. Understanding the terms and structures that the venture debt market offers companies at their respective stage is a key reason why many groups will hire a capital advisor to raise venture debt more intelligently for them.

Materials & Information is up to date
Yes, it is true that many companies are caught a little “off guard” when they’re informed that debt is in fact an option for them when they’re not raising a large equity round, therefore their financials and projections may not be fully caught up before starting a debt raise. Nevertheless, venture debt providers like the numbers, they like the metrics. They can buy into the “Story” as much as any equity investor but they need to be supported by the underlying metrics of the business. Having your financials caught up, your projections reflecting company goals, and your customer metrics caught up using software like SaaSOptics are fundamental for a smooth venture debt raise.

Approval from Board and other Key Stakeholders
All too often, a CFO, VP or even CEO starts several debt conversations or hires an advisory group to raise venture debt - without obtaining formal approval from the board. This is rarely the best course of action for the fact that the board can be caught not only off guard, leading to barriers to terms approval, but frequently leads to wasted time on all fronts. If the management team is spending time and resources on structuring debt terms for the board to reject the idea of debt altogether then all parties suffer the consequences - we always encourage our clients to seek board approval to at least look at debt options before engaging.

As the end of the year approaches and companies start formalizing budget plans for the end of year and the beginning of 2022, understanding these key fundraising pitfall risks can save all parties precious time and resources and ensure a streamlined debt raise.