Venture debt has long been a useful tool for early-stage companies seeking more cash without the share dilution that comes from another visit to equity markets. But what happens to companies that have already negotiated healthy debt packages—especially at a time when venture capital investing has slowed, and when tapping the nearly dormant IPO market is next to impossible?
Many are discovering that refinancing their venture debt agreements can be a relatively easy and affordable way to further extend their cash runways.
Unlike the slowdown in equity investing, the venture debt market is currently robust. Growing numbers of well-funded lenders are negotiating new, more favorable terms for existing debt deals that can further extend borrowers’ cash.
At Capital Advisors Group, our debt consulting group advises early-stage companies on how, when and why to seek venture debt financing. We help them source lenders, solicit offers, and negotiate the best possible terms.
To provide some perspective on the recent uptick in refinancing that we’ve experienced, we have published a case history illuminating how one medical device company extended its cash runway with refinancing. You can click on this link to download the full case history, but a quick look at the infographic that goes with it tells much of the story in a snapshot*:
The client, a medical device company that had recently won FDA approval, was falling behind its schedule to begin commercial operations in the U.S. The light-blue areas in the chart show cash the company raised in two equity rounds, and the dark-blue areas show additional cash provided by $12.5 million in venture debt.
The projected burn rates had the company running out of cash at the 37th month. But by refinancing the debt (in the orange-shaded area), the company extended its cash runway to breakeven at the 48th month and then went on to profitability.
That’s a good example why, given the current healthy competition in the market, we are encouraging early-stage CFOs who have already negotiated venture debt deals to investigate whether refinancing might make sense.
In addition to our case history, we also encourage you to read our 2016 Venture Debt Market Outlook for more information on current trends in the venture debt space. It lays out current market conditions, a variety of non-dilutive financing options, and practical considerations for any emerging growth company looking for a cash runway extension.
Since 2003, Capital Advisors Group’s debt consulting group has advised more than 600 companies develop 1,000-plus term sheets, addressing total debt needs in excess of $2.9 billion. Our debt consultants are experts with an exclusive focus on early-stage corporate debt, and our unique lender sourcing and negotiation process is designed to ensure we identify the best terms possible.
If you would like to hear more about venture debt and venture debt refinancing, please call us at 617-630-8100 or email firstname.lastname@example.org.
*For illustrative purposes only.