Using venture debt - 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. But later stage companies can benefit from venture debt as well.
If a company is close to reaching break-even the investors may want to avoid putting in more equity. At this stage of a company's life management will likely find a less dilutive option is attractive. A debt round that can bring the company to break-even means that the company can be self-sustaining which is always a great place to be.
When considering a debt round at this stage of a company’s life more repayment options may be available than at earlier stages. Once a company has the scale and ability to be self-sustaining debt structures with longer amortization schedules, or even bullet loans, come into play.
A longer amortization term can make a lot of sense for a nearly break-even business. With more time to repay the loan the company may be at a point where it generates sufficient cash flows to service the debt.
Considering a venture loan for a nearly break-even business can be a good low dilution option for investors and management. Consider a structure with longer interest-only or longer repayment amortization – ideally long enough to allow free cash flows to service the loan.