Growth startups can raise not only funding for equity but also funding for debt called venture debt.

Venture debt doesn’t dilute the founders and provides capital to continue the growth.

Here are some key terms and conditions to know when looking for venture debt:

There are term loans and revolving lines of credit with maturity dates and interest rates.

The lender will look to secure assets for the loan.  

Check to see if the intellectual property will be required.

If they do tie to the IP, then they will want a negative pledge in that they don’t want you to pledge the IP to any other lender.

Many lenders will require you to move all your banking to their firm.

If so, understand the account transfer period.

The amount of funding and timing is a key issue. Will the funds be transferred in one go or in tranches?

Check to see the requirements for each tranche.

Check for fees on early payoff and exits.

The default rate is the increase in the interest rate in case you default on the payments.

Finally, warrants are often part of the terms. A warrant is the right to buy stock at a specified price.  

What is the price of the warrant and what is the timeframe it is active?

Check for these key points in a discussion about venture debt.

Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let’s go startup something today.

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Thank you for joining your host Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing.

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Disclaimer:
Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.