BENEFITS OF VENTURE DEBT
THE VALUE
Whether you are mortgaging your home, using cash from friends and family, investing venture or angel capital, or running a small-cap publicly-traded company, most entrepreneurs are highly motivated to grow their business and reach cash flow breakeven swiftly. Given the uncertainty in managing a business, it is often difficult to predict cash flows. Consequently, it becomes necessary to seek other forms of financing to bridge funding gaps. This is when venture debt becomes extremely valuable and why Montage Capital offers a wide variety of products to meet those needs. |
| Montage offers solutions that are customized to fit a multitude of situations. The fund's clients secure financing for a variety of purposes, such as financing accounts receivable or inventory growth, bridging to an equity round or OEM deal, or supplementing cash in anticipation of an acquisition. Whatever the purpose, the fund generally structures its financing within the following parameters: |
WHAT WE PROVIDE
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Loan Types |
Milestone Loans, Working Capital Financing, Term Loans, Subordinated Debt, Merger & Acquisition Financing, Management Buyout & Recapitalizations |
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Typical Size |
$250,000 to $3,000,000 |
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Term |
18 months or less |
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Collateral |
Senior or secondary lien positions |
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Pricing |
Fees, interest and warrants to purchase stock |
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Financial Covenants |
None or Limited |
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Professional Equity Endorsement |
Not a prerequisite but beneficial |
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VENTURE DEBT RATIONALE:
So why choose venture debt over equity? One significant benefit is cost, specifically in terms of lower dilution. Consider the following scenario for a business needing $1M in capital for growth. Assume the company is worth $1M today. Should an owner/executive choose to raise $1M in equity, it would cost 50% of ownership, and an investor typically requires a seat on the board of directors. If the value of the company grows to $10M in 5 years, that equity financing would cost the entrepreneur/owners $5M, or the equivalent of a 45% compounded interest rate. Compare this to venture debt, which typically includes interest rates in the mid to high teens, an orgination fee, and generally less than 5% ownership (via warrants) for the same amount of capital.
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