Many emerging companies turn to venture debt facilities to meet at least some of their financing needs. Venture debt facilities are typically provided to companies that are still likely to require further equity investments from their venture capital investors. Most of these facilities include a loan facility (term loan and/or a revolver) and a warrant. In today’s competitive marketplace, many emerging companies, particularly in the life science, cleantech and consumer tech sectors, need to fund greater up-front capital outlays than in the past for manufacturing facilities, project development, R&D, etc. Equity investors are often hesitant to provide this extra capital; consequently, the demand for venture debt will expand as the need for up-front capital spending by emerging companies grows.
Following are some of the key terms in recent financings provided by venture banks and lenders that should be addressed at the term sheet stage. While this list is not exhaustive and does not address the particular circumstances of a given borrower, it includes issues that borrowers (often without the review of counsel) often fail to raise at the term sheet stage — yet the issues are customarily reflected in the final documentation. To avoid surprises, we recommend that the following terms be negotiated among emerging companies, their counsel and venture credit providers at the term sheet stage.
