How Strategic Debt Financing Can Turn the Tables in a Negotiation
Sometimes the best leverage in a negotiation comes from your ability to walk away from the table if necessary. Life sciences companies, however, often find themselves in exactly the opposite position. With long, uncertain development cycles and expensive, time-consuming regulatory approval processes, they burn through huge amounts of capital at a breakneck pace. Too often, they run out of capital before positive cash flow is even on the horizon. This leaves them at the mercy of investors who may set unreasonable terms for more capital or, worse, of acquirers ready to snatch them up for less than their true potential value.
To turn the tables in such negotiations, many life sciences companies have discovered that a little bit of venture debt can go a long way in restoring their leverage. Our debt finance consulting group has published a case history that tells the story of a client that used strategic debt to extend its cash runway beyond a trigger date set for a possible acquisition by a large strategic partner. The acquisition hinged in part on the company’s ability maintain a healthy balance sheet to support its late-clinical stage operations prior to the acquisition. With cash running out and management reluctant to dilute their shares in return for more venture capital, they turned to venture debt to bridge the gap.
Anatomy of a Deal describes how our debt finance consultants determined the client would benefit from a $10 million, multi-tranche loan that would help provide a five- to six-month cash runway extension and liquidity cushion beyond the targeted acquisition date. Our runway analysis demonstrates how the relatively small loan could not only avert more dilution, but also establish a capital structure providing the company with room to operate on a firm footing as it approached the acquisition. For a fascinating inside look at how the terms of such a loan can be established to help minimize risk while extending a company’s cash, download the case study from the link below.