Traditionally, growth stage technology companies in Southeast Asia have raised venture capital via convertible debt or equity rounds. However, venture debt is fast becoming an alternative or complementary path for startups looking to get capital to accelerate their growth. In this guide we cover the basics of venture debt. For more detail, download our latest free e-book, The Startup Guide to Venture Debt in Southeast Asia.
what is venture debt?
Venture debt is a form of debt financing, similar to bank loans but with a few key commercial differences. Venture debt is typically used by VC-backed, fast-growing tech startups that may not have positive cash flow or significant assets to use as collateral. These companies are typically not eligible to receive traditional debt financing from banks or other institutional lenders (or would only be able to borrow at prohibitive interest rates).
is my company a good candidate for venture debt?
The typical profile of a company taking on venture debt is a venture backed, fast-growing startup at series A or later. By the time a company is ready to explore venture debt, it will already have cashflow and an established customer base. Venture debt lenders also prefer venture-backed companies (i.e. those who have received funding from VCs / institutional investors). Institutional investors will have ‘vetted’ the company, and can be a future funding source should the company need help in paying back the venture debt.
why go for venture debt instead of an equity round or convertible debt?
There are a few reasons why a company may use venture debt as an alternative, or supplement, to equity financing:
- less dilution: founders retain more of their shareholding
- board control: venture debt lenders typically do not require a director seat
- transaction time: the process is generally faster than an equity round, since lenders ‘piggy-back’ off the due diligence of the institutional investors.
learn more about venture debt and the process
If you’re looking for more information about types of venture debt, key terms to negotiate in your venture debt term sheet, and details of venture debt providers in Singapore, download our free PDF guide.
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