Knowledge Centre


CLP has always been super transparent, super collaborative
— PJ Bouten, Co-founder & CEO Showpad

Venture debt is an important source of capital for startups. It has been available in the US for thirty years and in Europe for nearly twenty. Despite billions of dollars of venture debt deals funding every year there is surprisingly little information available about these loans. 

We've spoken with CEOs, CFOs and VCs who are highly knowledgeable about tech companies, how they work and the challenges they face. But venture debt is one area where they have a lot of questions. Venture lending is opaque like venture equity was maybe ten years ago. Lenders know a lot more about it than entrepreneurs and VCs. This can't be helpful to companies.

We’d like to help bring some TRANSPARENCY to venture lending.

 

Types of Debt

 

Venture Debt


Venture lending is what we do at CLP and I will post a number of topics about venture lending here
Read More →

Term Debt


What if a company wants to buy equipment, fund operations or make an acquisition?
Read More →

The MRR Line


So far we have covered standard types of debt – revolving lines of credit and term loans. Both of these can be available to venture-backed companies
Read More →

Line of Credit


One way to think of debt types is by the relative maturity – short or longer term
Read More →

Knowledge Centre


CLP has always been super transparent, super collaborative
— PJ Bouten, Co-founder & CEO Showpad
 

TYPES OF DEBT

 

Venture Debt


Venture lending is what we do at CLP and I will post a number of topics about venture lending here Read More →

 

Term Debt


What if a company wants to buy equipment, fund operations or make an acquisition? Read More →

 

Line of Credit


One way to think of debt types is by the relative maturity – short or longer term. Read More →

 

The MRR Line


So far we have covered standard types of debt – revolving lines of credit and term loans. Both of these can be available to venture-backed companies Read More →

CLP-logo-mountains.png
 

Uses of Venture Debt 

 

Extending Cash Runway


The classic use case for a round of venture debt is topping up an equity round to extend the cash runway
Read More →

The In-betweener


As the cliché goes, the road to success for a startup isn’t a straight path
Read More →

The Insurance Policy


The last post covered how a venture loan can provide additional cash runway
Read More →

 

To Avoid Setting a Valuation

Preventing a Bridge Round


Down rounds (or heavily structured "flat" rounds) are tough. Nobody likes them
Read More →


Ideally, as a startup grows its funding will take it to milestones that allow for more equity to come in a higher prices (what are called up-rounds)
Read More →

Bridging to Profitability

Acquisitions or Capital Expenditures


Large purchases of capital equipment – or even companies – are classic uses of proceeds from a loan
Read More →


This is for companies that are almost there.

So far the use cases covered have assumed that a startup will continue to raise more equity
Read More →

CLP-logo-mountains.png
 

 USES OF VENTURE DEBT

Extending Cash Runway


The classic use case for a round of venture debt is topping up an equity round to extend the cash runway Read More →

 

The In-betweener


As the cliché goes, the road to success for a startup isn’t a straight path Read More →

 

The Insurance Policy


The last post covered how a venture loan can provide additional cash runway Read More →


Bridging to Profitability


This is for companies that are almost there. So far the use cases covered have assumed that a startup will continue to raise more equity Read More →

 

Acquisitions or Capital Expenditures


Large purchases of capital equipment – or even companies – are classic uses of proceeds from a loan Read More →

 

Preventing a Bridge Round


Ideally, as a startup grows its funding will take it to milestones that allow for more equity to come in a higher prices (what are called up-rounds) Read More →

 

To Avoid Setting a Valuation


Down rounds (or heavily structured "flat" rounds) are tough. Nobody likes them Read More →

 
 

Venture Debt Terms: Unpacked

 

Availability


Most lenders will prefer for all of the loan to be drawn at the Closing Date. Exceptions are tranched loans or delayed draws
Read More →

Break Fee


The lender will put resources onto closing and funding a transaction
Read More →

Costs


The borrower will be responsible to pay its costs plus the legal and out of pocket costs for the lender
Read More →

Closing Date


The next several posts will cover general terms of a venture debt term sheet
Read More →

 

Fees

 



Closing fee
Venture lenders, as with most lenders, will often charge a closing fee
Read More →

Maturity fee
Also called a Bonus Interest, End of Term Payment, Back End Fee or Repayment Fee and not to be confused with a Prepayment fee
Read More →

Prepayment fee
This fee is a cost to the borrower for the option of repaying a loan early
Read More →

 

Financial Covenants


A financial covenant is a company performance threshold placed into a loan agreement by the lender
Read More →

Interest Rate


The interest rate is the headline number in any venture loan.
If the return from warrants is modest or zero the majority of a lender’s return will come from the interest rate
Read More →

Last Payment


The standard 36 month amortizing venture loan will ask for the first principal payment at the end of Month 1 and the final principal payment at the end of Month 36
Read More →

Legal Documentation


A term sheet outlines the basic business terms of a deal
Read More →

 

Maturity Date


Often 36 months after the closing date. The loan will be fully repaid by this date
Read More →

Observer Status


Best practice for a lender would be to sit as a board observer
Read More →

Repayments


Principal and interest payments are typically made each month for 36 months
Read More →

Reporting


Venture backed startups – well run ones, anyway – have no shortage of reporting
Read More →

 

Security & Ranking


The term sheet will describe what ranking (typically senior) and type of security (typically all assets) the lender will take
Read More →

Tranches


There are times when the lender, or the company, prefer to fund in tranches rather than all at once
Read More →

Warrants


The returns for a venture loan come from two sources – cash (in the form of interest and fees) and equity (in the form of warrants)
Read More →

CLP-logo-mountains.png
 

VENTURE DEBT TERMS: UNPACKED 

Availability


Most lenders will prefer for all of the loan to be drawn at the Closing Date. Exceptions are tranched loans or delayed draws Read More →

 

Break Fee


The lender will put resources onto closing and funding a transaction Read More →

 

Costs


The borrower will be responsible to pay its costs plus the legal and out of pocket costs for the lender Read More →

 

Closing Date


The next several posts will cover general terms of a venture debt term sheet Read More →

 

Fees


Closing fee
Venture lenders, as with most lenders, will often charge a closing fee Read More →

Maturity fee
Also called a Bonus Interest, End of Term Payment, Back End Fee or Repayment Fee and not to be confused with a repayment fee Read More →

Prepayment fee
This fee is a cost to the borrower for the option of repaying a loan early Read More →

 

Financial Covenants


A financial covenant is a company performance threshold placed into a loan agreement by the lender Read More →

 

Interest Rate


The interest rate is the headline number in any venture loan. If the return from warrants is modest or zero the majority of a lender’s return will come from the interest rate Read More →

 

Last Payment


The standard 36 month amortizing venture loan will ask for the first principal payment at the end of Month 1 and the final principal payment at the end of Month 36 Read More →

 

Legal Documentation


A term sheet outlines the basic business terms of a deal Read More →

 

Maturity Date


Often 36 months after the closing date. The loan will be fully repaid by this date Read More →

 

Observer Status


Best practice for a lender would be to sit as a board observer Read More →

 

Repayments


Principal and interest payments are typically made each month for 36 months Read More →

 

Reporting


Venture backed startups – well run ones, anyway – have no shortage of reporting Read More →

 

Security & Ranking


The term sheet will describe what ranking (typically senior) and type of security (typically all assets) the lender will take Read More →

 

Tranches


There are times when the lender, or the company, prefer to fund in tranches rather than all at once Read More →

 

Venture Debt Terms


Despite billions of dollars of venture debt deals funding every year there is surprisingly little information available about these loans Read More →

 

Warrants


The returns for a venture loan come from two sources – cash (in the form of interest and fees) and equity (in the form of warrants) Read More →