Understanding Venture Debt

In this episode, Ruslan Sergeyev, Managing Director of Hercules Capital gives CJ a masterclass in venture debt. He explains what venture debt is, its various types, and the potential benefits it can bring to your business. Ruslan sheds light on the current landscape and big players in venture dept. He provides insight on covenants, rates, warrants, and success fees in debt structure, and the difference between banks and funds. The discussion covers how much debt is appropriate for a capital stack and when you should refrain from raising venture debt altogether. Discover strategies for leveraging each banking activity as a chip to get the best deals with banks and learn what red flags to look out for in the process. 

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SPONSORS:

Mercury is the fintech ambitious companies use for banking and all their financial workflows. With a powerful bank account at the center of their operations, companies can make better financial decisions and ensure that every dollar spent aligns with company priorities. That's why over 100K startups choose Mercury to confidently run all their financial operations with the precision, control, and focus they need to operate at their best. Learn more at mercury.com.

Mercury is a financial technology company, not a bank. Banking services provided by Choice Financial Group and Evolve Bank & Trust®; Members FDIC.

NetSuite provides financial software for all your business needs. More than 37,000 thousand companies have already upgraded to NetSuite, gaining visibility and control over their financials, inventory, HR, eCommerce, and more. If you're looking for an ERP platform ✅ NetSuite: https://netsuite.com/metrics and get a customized KPI checklist. 

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TIMESTAMPS:

(00:00) Preview and Intro

(02:36) Sponsor - Mercury | NetSuite

(05:13) Venture Debt: A Definition and Its Flavors

(08:07) Valuations Versus Distressed Sale Value for Venture Debt

(10:10) The Truth About Excess Cash Balances Held as Collateral Post-SVB Collapse

(14:28) The Percentage of Debt Deals Done in Conjunction With Equity Raises

(15:22) Typical Covenants Imposed on Startups

(16:38) Advice for CFOs Trying to Get the Best Terms or Covenants

(17:41) Covenants, Rates, and Warrants in Debt Structure

(20:00) Sponsor - Maxio | Leapfin

(23:19) When Not to Raise Venture Debt

(24:22) How Much Debt is Appropriate for a Capital Stack

(27:20) Ratios for Presenting the Business Case for Venture Debt 

(28:28) The Current Landscape and Big Players in Venture Debt

(33:01) Banks Versus Funds

(35:24) The Skews That Make the Most Money for the Bank

(36:25) Why Venture Debt is at the Top of Funnel for Banking Services 

(39:33) Whether or Not You Want to Be One of the Smallest Clients in the Bank's Portfolio

(41:31) Debt Versus Equity

(43:08) The Nature of the Relationship Between VCs and Venture Debt Players

(48:00) Using Each Banking Activity as a Chip to Get the Best Deals 

(50:05) Red Flags in the Venture Debt Process

(52:34) The Types of Deals Hercules Capital is Interested in