SlideShare a Scribd company logo
1 of 22
// financial series
10 Ways to
Borrow Wisely
Criteria to Help You Compare
Venture Debt Term Sheets
John McCullough
Director of Business
& Corporate Development
As either a key source of minimally dilutive growth funding and/ or
runway between equity financings, debt is an important
component of the capital structure for many VC-backed startups.
Whether you’re raising your first credit line or have been working
with the same lender for years, it’s important to understand how
to compare venture debt offers (in very general terms, we’ll define
venture debt as term financing with durations of between 3 and 5
years), either from less risk-averse venture debt funds or more
conservative banks.
While not exhaustive, here are 10 items to compare across
competing term sheets that should, to some extent, be up for
negotiation….
1. Loan Size
// financial series
Loan Size
What sort of turn on revenue or earnings is
the lender willing to give you? It may be
more than you need, or less. Sizing often
ranges from ~20% to 100% of the most
recent venture round.
2. Interest Rate
// financial series
Interest Rate
Not only the initial rate itself, but whether floating or
fixed. A lot of term sheets these days propose a spread
to prime rate, which is obviously variable; if floating,
understand both the reference rate and the spread. Also
be sure to know if there is a minimum (aka “floor”) rate
as part of the variable construct. Currently, banks tend to
hover around 5-8% total rate, while more risk tolerant
venture debt firms are more often in the 10-14% range.
3. Interest-Only Period
// financial series
Interest-Only Period
Given the cash-burn profile of many startups,
lenders are willing to forgo principal repayments for a
period (broadly speaking, in exchange for upside via
warrants, higher collateral, or in other ways); this can
range from roughly 0 to 18 months depending on the
lender and profile of the business.
4. Term / Maturity Date
// financial series
Interest-Only Period
For obvious reasons a longer term may be
more desirable, and they generally range
from 36 to 48 months.
5. Warrant Coverage
// financial series
Warrant Coverage
Usually expressed as a percentage of the loan size,
warrants represent the right of the bank to purchase
preferred equity shares in the business — usually at
a share price equal to the lower of the most recent
equity round or the next equity round. If included,
coverage can run from a few percentage points with
banks to as high as 10 to 15% with venture debt
funds.
6. Unused Facility Fee
// financial series
Unused Facility Fee
Often banks will charge a fee on the unused portion of a
credit facility (if you’ve chosen to use a revolver in
addition to the term loan) as compensation for keeping
the line open and assuring the borrower the funds will be
there in the future at the stated contractual rate
regardless of market conditions. It’s generally expressed
as a small percent of the facility size and paid monthly or
quarterly. These fees range from zero to a few
percentage points.
7. Pre-Payment Penalty
// financial series
Pre-Payment Penalty
Term sheets may request none, or may lay out a
detailed waterfall whereby the penalty, as a percent
of the loan, steps down incrementally as the pre-
payment date moves closer to the maturity date (i.e.
from 3% for first 12 months, to 2% in the second 12
months, and so on); typically you should expect to
see 1-3% of principal. In some cases all future
interest payments may be accelerated.
8. MAC
// financial series
Material Adverse Change
A material adverse change clause allows the lender to
call a loan if they deem a material change (i.e. something
unpredictable) in the business to have taken place that
renders the company unable to repay, or more generally,
significantly increases the risk assumed by the lender.
Simply put, you’d rather not be subject to a MAC clause
— but if you are, the goal is to narrow the scope of the
clause to the extent practical.
9. Covenants
// financial series
Material Adverse Change
While venture debt providers don’t usually require
covenants, the more conservative bank lenders will
often propose a minimum liquidity covenant (the
dollar amount of working capital) and / or trailing
EBITDA profit / loss thresholds that are tested
quarterly; while not ideal, if the covenants are easily
met than this may be a more acceptable ‘give’ than
higher debt costs and other unfavorable features.
10. Other
// financial series
Other
Board observer seats, rights to invest in
subsequent equity rounds, requirements to
keep primary depository and operating
accounts with the institution (in the case of
banks only) may also appear on term sheets.

More Related Content

What's hot

Sources Of Long Term Finance
Sources Of Long Term FinanceSources Of Long Term Finance
Sources Of Long Term Financewizkidrx
 
Intermediate term financing
Intermediate term financingIntermediate term financing
Intermediate term financingMelchorita Apat
 
Credit Management Chap 9
Credit Management Chap 9 Credit Management Chap 9
Credit Management Chap 9 Fatfat Shiying
 
Target income series
Target income seriesTarget income series
Target income serieskeatonsmith
 
Target Income Series
Target Income SeriesTarget Income Series
Target Income Serieskeatonsmith
 
Sources of finance
Sources of financeSources of finance
Sources of financebloomy86
 
ALCO Process - Funds Management
ALCO Process - Funds ManagementALCO Process - Funds Management
ALCO Process - Funds Managementenelson13
 
Sources of-finance
Sources of-financeSources of-finance
Sources of-financemohd zafeer
 
Intermediate term financing
Intermediate term financingIntermediate term financing
Intermediate term financingCamille Yson
 
External Sources of Finance
External Sources  of  FinanceExternal Sources  of  Finance
External Sources of Financeayushbhadra
 
Sources Of Finance
Sources Of FinanceSources Of Finance
Sources Of FinanceRahul Jain
 
Role of debts in financial leverage by Punit Harkut
 Role of debts in financial leverage by Punit Harkut Role of debts in financial leverage by Punit Harkut
Role of debts in financial leverage by Punit HarkutPunit Harkut
 
factors considered when estimating the rate of return
factors considered when estimating the rate of returnfactors considered when estimating the rate of return
factors considered when estimating the rate of returnAleck Makandwa
 
Third Point Reinsurance Ltd. Investor Presentation
Third Point Reinsurance Ltd. Investor PresentationThird Point Reinsurance Ltd. Investor Presentation
Third Point Reinsurance Ltd. Investor Presentationirthirdpointre
 
Sources Of Finance
Sources Of FinanceSources Of Finance
Sources Of FinanceMarcus9000
 
Sources of Finance for a Startup
Sources of Finance for a StartupSources of Finance for a Startup
Sources of Finance for a Startuptutor2u
 

What's hot (20)

Sources Of Long Term Finance
Sources Of Long Term FinanceSources Of Long Term Finance
Sources Of Long Term Finance
 
The credit policy
The credit policyThe credit policy
The credit policy
 
Intermediate term financing
Intermediate term financingIntermediate term financing
Intermediate term financing
 
Credit Management Chap 9
Credit Management Chap 9 Credit Management Chap 9
Credit Management Chap 9
 
Target income series
Target income seriesTarget income series
Target income series
 
Target Income Series
Target Income SeriesTarget Income Series
Target Income Series
 
Sources of finance
Sources of financeSources of finance
Sources of finance
 
Finance assignment help
Finance assignment helpFinance assignment help
Finance assignment help
 
ALCO Process - Funds Management
ALCO Process - Funds ManagementALCO Process - Funds Management
ALCO Process - Funds Management
 
Sources of-finance
Sources of-financeSources of-finance
Sources of-finance
 
Intermediate term financing
Intermediate term financingIntermediate term financing
Intermediate term financing
 
External Sources of Finance
External Sources  of  FinanceExternal Sources  of  Finance
External Sources of Finance
 
Sources Of Finance
Sources Of FinanceSources Of Finance
Sources Of Finance
 
Sources of finance
Sources of finance Sources of finance
Sources of finance
 
Role of debts in financial leverage by Punit Harkut
 Role of debts in financial leverage by Punit Harkut Role of debts in financial leverage by Punit Harkut
Role of debts in financial leverage by Punit Harkut
 
factors considered when estimating the rate of return
factors considered when estimating the rate of returnfactors considered when estimating the rate of return
factors considered when estimating the rate of return
 
Third Point Reinsurance Ltd. Investor Presentation
Third Point Reinsurance Ltd. Investor PresentationThird Point Reinsurance Ltd. Investor Presentation
Third Point Reinsurance Ltd. Investor Presentation
 
Sources Of Finance
Sources Of FinanceSources Of Finance
Sources Of Finance
 
Sources of Finance for a Startup
Sources of Finance for a StartupSources of Finance for a Startup
Sources of Finance for a Startup
 
The Art of Credit Management
The Art of Credit ManagementThe Art of Credit Management
The Art of Credit Management
 

Viewers also liked

BARON RENE BOEL WAS FRIEND OF CIA BOSS
 BARON RENE BOEL WAS FRIEND OF CIA BOSS BARON RENE BOEL WAS FRIEND OF CIA BOSS
BARON RENE BOEL WAS FRIEND OF CIA BOSSThierry Debels
 
The iBeacon Guide To Success - A comprehensive overview on the technology wit...
The iBeacon Guide To Success - A comprehensive overview on the technology wit...The iBeacon Guide To Success - A comprehensive overview on the technology wit...
The iBeacon Guide To Success - A comprehensive overview on the technology wit...candylabs
 
No More Stinking Linking
No More Stinking LinkingNo More Stinking Linking
No More Stinking LinkingSha Menz
 
A Short Guide to Verbier
A Short Guide to VerbierA Short Guide to Verbier
A Short Guide to VerbierAmanda Starbuck
 
Matematica II
Matematica IIMatematica II
Matematica IIkari243
 
Εισαγωγή στους Κειμενογράφους
Εισαγωγή στους ΚειμενογράφουςΕισαγωγή στους Κειμενογράφους
Εισαγωγή στους ΚειμενογράφουςExpertin
 
Career development william j. henne
Career development william j. henneCareer development william j. henne
Career development william j. hennewhenne02
 
Social Bookmarking with Delicious
Social Bookmarking with DeliciousSocial Bookmarking with Delicious
Social Bookmarking with DeliciousJon Hoff
 
Общие сведения о системах веб-аналитики. Ключевые показатели эффективности дл...
Общие сведения о системах веб-аналитики. Ключевые показатели эффективности дл...Общие сведения о системах веб-аналитики. Ключевые показатели эффективности дл...
Общие сведения о системах веб-аналитики. Ключевые показатели эффективности дл...Techart Marketing Group
 
Implantar la conciliación de la vida personal y laboral en la empresa
Implantar la conciliación de la vida personal y laboral en la empresaImplantar la conciliación de la vida personal y laboral en la empresa
Implantar la conciliación de la vida personal y laboral en la empresaGrup Pitagora
 
Enabling and Celebrating The DOers
Enabling and Celebrating The DOersEnabling and Celebrating The DOers
Enabling and Celebrating The DOersJames Parton
 
Biology lecture 5
Biology lecture 5Biology lecture 5
Biology lecture 5Etugen
 
Lista de Acordes (Tríades)
Lista de Acordes (Tríades)Lista de Acordes (Tríades)
Lista de Acordes (Tríades)Luciano Di Lima
 

Viewers also liked (20)

BARON RENE BOEL WAS FRIEND OF CIA BOSS
 BARON RENE BOEL WAS FRIEND OF CIA BOSS BARON RENE BOEL WAS FRIEND OF CIA BOSS
BARON RENE BOEL WAS FRIEND OF CIA BOSS
 
The iBeacon Guide To Success - A comprehensive overview on the technology wit...
The iBeacon Guide To Success - A comprehensive overview on the technology wit...The iBeacon Guide To Success - A comprehensive overview on the technology wit...
The iBeacon Guide To Success - A comprehensive overview on the technology wit...
 
Dark Clouds & Silver Linings
Dark Clouds & Silver LiningsDark Clouds & Silver Linings
Dark Clouds & Silver Linings
 
No More Stinking Linking
No More Stinking LinkingNo More Stinking Linking
No More Stinking Linking
 
A Short Guide to Verbier
A Short Guide to VerbierA Short Guide to Verbier
A Short Guide to Verbier
 
Alertas farmacológicas
Alertas farmacológicasAlertas farmacológicas
Alertas farmacológicas
 
Matematica II
Matematica IIMatematica II
Matematica II
 
Εισαγωγή στους Κειμενογράφους
Εισαγωγή στους ΚειμενογράφουςΕισαγωγή στους Κειμενογράφους
Εισαγωγή στους Κειμενογράφους
 
Career development william j. henne
Career development william j. henneCareer development william j. henne
Career development william j. henne
 
OPIC Documents Index
OPIC Documents IndexOPIC Documents Index
OPIC Documents Index
 
Customer Service BenchMark
Customer Service BenchMarkCustomer Service BenchMark
Customer Service BenchMark
 
Social Bookmarking with Delicious
Social Bookmarking with DeliciousSocial Bookmarking with Delicious
Social Bookmarking with Delicious
 
Definitions
DefinitionsDefinitions
Definitions
 
Общие сведения о системах веб-аналитики. Ключевые показатели эффективности дл...
Общие сведения о системах веб-аналитики. Ключевые показатели эффективности дл...Общие сведения о системах веб-аналитики. Ключевые показатели эффективности дл...
Общие сведения о системах веб-аналитики. Ключевые показатели эффективности дл...
 
Mooc
MoocMooc
Mooc
 
Implantar la conciliación de la vida personal y laboral en la empresa
Implantar la conciliación de la vida personal y laboral en la empresaImplantar la conciliación de la vida personal y laboral en la empresa
Implantar la conciliación de la vida personal y laboral en la empresa
 
Enabling and Celebrating The DOers
Enabling and Celebrating The DOersEnabling and Celebrating The DOers
Enabling and Celebrating The DOers
 
Formative assessment
Formative assessmentFormative assessment
Formative assessment
 
Biology lecture 5
Biology lecture 5Biology lecture 5
Biology lecture 5
 
Lista de Acordes (Tríades)
Lista de Acordes (Tríades)Lista de Acordes (Tríades)
Lista de Acordes (Tríades)
 

Similar to 10 Criteria to Help You Compare Venture Debt Term Sheets

CF Chapter - 3 Dividend Policy.pptx
CF Chapter - 3 Dividend Policy.pptxCF Chapter - 3 Dividend Policy.pptx
CF Chapter - 3 Dividend Policy.pptxHussenMahammed1
 
2022 Venture Debt Guide from OpenView
2022 Venture Debt Guide from OpenView2022 Venture Debt Guide from OpenView
2022 Venture Debt Guide from OpenViewOpenView
 
Financial Guarantee 1[1] Music [Recovered] 5 01 09
Financial Guarantee 1[1] Music [Recovered] 5 01 09Financial Guarantee 1[1] Music [Recovered] 5 01 09
Financial Guarantee 1[1] Music [Recovered] 5 01 09BPANGEL13
 
AnatomyTermSheet_Updated_11.14.PDF
AnatomyTermSheet_Updated_11.14.PDFAnatomyTermSheet_Updated_11.14.PDF
AnatomyTermSheet_Updated_11.14.PDFbhron
 
Managing Business Debts " A book to enlargen your horizon in managing busines...
Managing Business Debts " A book to enlargen your horizon in managing busines...Managing Business Debts " A book to enlargen your horizon in managing busines...
Managing Business Debts " A book to enlargen your horizon in managing busines...lewisjunior142
 
Bridging Finance Guide-20 Steps to Bridging Finance Success by Blueray Capital
Bridging Finance Guide-20 Steps to Bridging Finance Success by Blueray CapitalBridging Finance Guide-20 Steps to Bridging Finance Success by Blueray Capital
Bridging Finance Guide-20 Steps to Bridging Finance Success by Blueray CapitalBlueray Capital
 
Introduction to Debt Financing
Introduction to Debt FinancingIntroduction to Debt Financing
Introduction to Debt FinancingLoanXpress
 
Securing Retirement Outcomes - Mercer 2014
Securing Retirement Outcomes - Mercer 2014Securing Retirement Outcomes - Mercer 2014
Securing Retirement Outcomes - Mercer 2014Steven Reta
 
Syndication & funding
Syndication & fundingSyndication & funding
Syndication & fundingRepublicGov
 
Debt financing or equity financing
Debt financing or equity financingDebt financing or equity financing
Debt financing or equity financingimran hossain ruman
 
Approaching Your BankerTips1. Keep in mind tha.docx
Approaching Your BankerTips1. Keep in mind tha.docxApproaching Your BankerTips1. Keep in mind tha.docx
Approaching Your BankerTips1. Keep in mind tha.docxrossskuddershamus
 
Sources of finance for Oil,Gas and Petroleum companies.
Sources of finance for Oil,Gas and Petroleum companies.Sources of finance for Oil,Gas and Petroleum companies.
Sources of finance for Oil,Gas and Petroleum companies.Harish Manchala
 
Explain how EBIT influences debt capacity and the relevance.pdf
Explain how EBIT influences debt capacity and the relevance.pdfExplain how EBIT influences debt capacity and the relevance.pdf
Explain how EBIT influences debt capacity and the relevance.pdfbkbk37
 
Financing Alternatives For Government Contractors
Financing Alternatives For Government ContractorsFinancing Alternatives For Government Contractors
Financing Alternatives For Government ContractorsPrivia LLC
 
2210_14_BR_Construction_Whitepaper_July2014
2210_14_BR_Construction_Whitepaper_July20142210_14_BR_Construction_Whitepaper_July2014
2210_14_BR_Construction_Whitepaper_July2014Steve Osborne
 
Quantum News - Winter 2015 Issue
Quantum News - Winter 2015 IssueQuantum News - Winter 2015 Issue
Quantum News - Winter 2015 IssueEleni Dowsell
 
3 Structure of Interest RatesCHAPTER OBJECTIVESThe specific ob.docx
3 Structure of Interest RatesCHAPTER OBJECTIVESThe specific ob.docx3 Structure of Interest RatesCHAPTER OBJECTIVESThe specific ob.docx
3 Structure of Interest RatesCHAPTER OBJECTIVESThe specific ob.docxlorainedeserre
 
CHAPTER 16 .pptx
CHAPTER 16 .pptxCHAPTER 16 .pptx
CHAPTER 16 .pptxkiran arif
 

Similar to 10 Criteria to Help You Compare Venture Debt Term Sheets (20)

CF Chapter - 3 Dividend Policy.pptx
CF Chapter - 3 Dividend Policy.pptxCF Chapter - 3 Dividend Policy.pptx
CF Chapter - 3 Dividend Policy.pptx
 
Intermediate term financing
Intermediate term financingIntermediate term financing
Intermediate term financing
 
2022 Venture Debt Guide from OpenView
2022 Venture Debt Guide from OpenView2022 Venture Debt Guide from OpenView
2022 Venture Debt Guide from OpenView
 
Short term financial planning
Short term financial planningShort term financial planning
Short term financial planning
 
Financial Guarantee 1[1] Music [Recovered] 5 01 09
Financial Guarantee 1[1] Music [Recovered] 5 01 09Financial Guarantee 1[1] Music [Recovered] 5 01 09
Financial Guarantee 1[1] Music [Recovered] 5 01 09
 
AnatomyTermSheet_Updated_11.14.PDF
AnatomyTermSheet_Updated_11.14.PDFAnatomyTermSheet_Updated_11.14.PDF
AnatomyTermSheet_Updated_11.14.PDF
 
Managing Business Debts " A book to enlargen your horizon in managing busines...
Managing Business Debts " A book to enlargen your horizon in managing busines...Managing Business Debts " A book to enlargen your horizon in managing busines...
Managing Business Debts " A book to enlargen your horizon in managing busines...
 
Bridging Finance Guide-20 Steps to Bridging Finance Success by Blueray Capital
Bridging Finance Guide-20 Steps to Bridging Finance Success by Blueray CapitalBridging Finance Guide-20 Steps to Bridging Finance Success by Blueray Capital
Bridging Finance Guide-20 Steps to Bridging Finance Success by Blueray Capital
 
Introduction to Debt Financing
Introduction to Debt FinancingIntroduction to Debt Financing
Introduction to Debt Financing
 
Securing Retirement Outcomes - Mercer 2014
Securing Retirement Outcomes - Mercer 2014Securing Retirement Outcomes - Mercer 2014
Securing Retirement Outcomes - Mercer 2014
 
Syndication & funding
Syndication & fundingSyndication & funding
Syndication & funding
 
Debt financing or equity financing
Debt financing or equity financingDebt financing or equity financing
Debt financing or equity financing
 
Approaching Your BankerTips1. Keep in mind tha.docx
Approaching Your BankerTips1. Keep in mind tha.docxApproaching Your BankerTips1. Keep in mind tha.docx
Approaching Your BankerTips1. Keep in mind tha.docx
 
Sources of finance for Oil,Gas and Petroleum companies.
Sources of finance for Oil,Gas and Petroleum companies.Sources of finance for Oil,Gas and Petroleum companies.
Sources of finance for Oil,Gas and Petroleum companies.
 
Explain how EBIT influences debt capacity and the relevance.pdf
Explain how EBIT influences debt capacity and the relevance.pdfExplain how EBIT influences debt capacity and the relevance.pdf
Explain how EBIT influences debt capacity and the relevance.pdf
 
Financing Alternatives For Government Contractors
Financing Alternatives For Government ContractorsFinancing Alternatives For Government Contractors
Financing Alternatives For Government Contractors
 
2210_14_BR_Construction_Whitepaper_July2014
2210_14_BR_Construction_Whitepaper_July20142210_14_BR_Construction_Whitepaper_July2014
2210_14_BR_Construction_Whitepaper_July2014
 
Quantum News - Winter 2015 Issue
Quantum News - Winter 2015 IssueQuantum News - Winter 2015 Issue
Quantum News - Winter 2015 Issue
 
3 Structure of Interest RatesCHAPTER OBJECTIVESThe specific ob.docx
3 Structure of Interest RatesCHAPTER OBJECTIVESThe specific ob.docx3 Structure of Interest RatesCHAPTER OBJECTIVESThe specific ob.docx
3 Structure of Interest RatesCHAPTER OBJECTIVESThe specific ob.docx
 
CHAPTER 16 .pptx
CHAPTER 16 .pptxCHAPTER 16 .pptx
CHAPTER 16 .pptx
 

More from Kyle Lacy

Surviving the Change Agents - How Business Survive the Next Evolution
Surviving the Change Agents - How Business Survive the Next EvolutionSurviving the Change Agents - How Business Survive the Next Evolution
Surviving the Change Agents - How Business Survive the Next EvolutionKyle Lacy
 
The Future of Marketing - Steps to Building Experiences of the Future
The Future of Marketing - Steps to Building Experiences of the FutureThe Future of Marketing - Steps to Building Experiences of the Future
The Future of Marketing - Steps to Building Experiences of the FutureKyle Lacy
 
Top 2017 Learning Trends via LinkedIn
Top 2017 Learning Trends via LinkedInTop 2017 Learning Trends via LinkedIn
Top 2017 Learning Trends via LinkedInKyle Lacy
 
How Consumer Technology Companies Are Changing the World
How Consumer Technology Companies Are Changing the WorldHow Consumer Technology Companies Are Changing the World
How Consumer Technology Companies Are Changing the WorldKyle Lacy
 
How to Build the Business of the Future v2
How to Build the Business of the Future v2How to Build the Business of the Future v2
How to Build the Business of the Future v2Kyle Lacy
 
Closing the Knowledge Divide: How to Build the Business of the Future
Closing the Knowledge Divide: How to Build the Business of the FutureClosing the Knowledge Divide: How to Build the Business of the Future
Closing the Knowledge Divide: How to Build the Business of the FutureKyle Lacy
 
Change Agents: How Consumer Centric Technology Companies Change the World
Change Agents: How Consumer Centric Technology Companies Change the WorldChange Agents: How Consumer Centric Technology Companies Change the World
Change Agents: How Consumer Centric Technology Companies Change the WorldKyle Lacy
 
What I Learned About Software Marketing and Growth After 2 Years in Venture C...
What I Learned About Software Marketing and Growth After 2 Years in Venture C...What I Learned About Software Marketing and Growth After 2 Years in Venture C...
What I Learned About Software Marketing and Growth After 2 Years in Venture C...Kyle Lacy
 
It Shouldn't Be Scary to Go Digital
It Shouldn't Be Scary to Go DigitalIt Shouldn't Be Scary to Go Digital
It Shouldn't Be Scary to Go DigitalKyle Lacy
 
The 4 Ps to Sustainable Growth
The 4 Ps to Sustainable GrowthThe 4 Ps to Sustainable Growth
The 4 Ps to Sustainable GrowthKyle Lacy
 
Marketing is Dead. Build a Foundation. Ignore the Hype.
Marketing is Dead. Build a Foundation. Ignore the Hype.Marketing is Dead. Build a Foundation. Ignore the Hype.
Marketing is Dead. Build a Foundation. Ignore the Hype.Kyle Lacy
 
You Can't Growth Hack Your Way to Success
You Can't Growth Hack Your Way to SuccessYou Can't Growth Hack Your Way to Success
You Can't Growth Hack Your Way to SuccessKyle Lacy
 
Marketing is Dead. Only Moments Matter - UserTesting Roadshow - 10/5/2016
Marketing is Dead. Only Moments Matter - UserTesting Roadshow - 10/5/2016Marketing is Dead. Only Moments Matter - UserTesting Roadshow - 10/5/2016
Marketing is Dead. Only Moments Matter - UserTesting Roadshow - 10/5/2016Kyle Lacy
 
It Shouldn't Be Scary to Go Digital
It Shouldn't Be Scary to Go DigitalIt Shouldn't Be Scary to Go Digital
It Shouldn't Be Scary to Go DigitalKyle Lacy
 
Marketing is Dead - Uberflip User Conference Presentation
Marketing is Dead - Uberflip User Conference PresentationMarketing is Dead - Uberflip User Conference Presentation
Marketing is Dead - Uberflip User Conference PresentationKyle Lacy
 
Marketing is Dead - TrackMaven Digital Conference
Marketing is Dead - TrackMaven Digital ConferenceMarketing is Dead - TrackMaven Digital Conference
Marketing is Dead - TrackMaven Digital ConferenceKyle Lacy
 
Marketing Team Organizational Structures
Marketing Team Organizational StructuresMarketing Team Organizational Structures
Marketing Team Organizational StructuresKyle Lacy
 
Marketing is Dead - Inbound Experience Conference
Marketing is Dead - Inbound Experience ConferenceMarketing is Dead - Inbound Experience Conference
Marketing is Dead - Inbound Experience ConferenceKyle Lacy
 
Marketing is Dead - Understanding the Shifts Changing Marketing Today
Marketing is Dead - Understanding the Shifts Changing Marketing TodayMarketing is Dead - Understanding the Shifts Changing Marketing Today
Marketing is Dead - Understanding the Shifts Changing Marketing TodayKyle Lacy
 
Moments Matter : Why Technology Tips the Scale for Massive Change in Transpor...
Moments Matter : Why Technology Tips the Scale for Massive Change in Transpor...Moments Matter : Why Technology Tips the Scale for Massive Change in Transpor...
Moments Matter : Why Technology Tips the Scale for Massive Change in Transpor...Kyle Lacy
 

More from Kyle Lacy (20)

Surviving the Change Agents - How Business Survive the Next Evolution
Surviving the Change Agents - How Business Survive the Next EvolutionSurviving the Change Agents - How Business Survive the Next Evolution
Surviving the Change Agents - How Business Survive the Next Evolution
 
The Future of Marketing - Steps to Building Experiences of the Future
The Future of Marketing - Steps to Building Experiences of the FutureThe Future of Marketing - Steps to Building Experiences of the Future
The Future of Marketing - Steps to Building Experiences of the Future
 
Top 2017 Learning Trends via LinkedIn
Top 2017 Learning Trends via LinkedInTop 2017 Learning Trends via LinkedIn
Top 2017 Learning Trends via LinkedIn
 
How Consumer Technology Companies Are Changing the World
How Consumer Technology Companies Are Changing the WorldHow Consumer Technology Companies Are Changing the World
How Consumer Technology Companies Are Changing the World
 
How to Build the Business of the Future v2
How to Build the Business of the Future v2How to Build the Business of the Future v2
How to Build the Business of the Future v2
 
Closing the Knowledge Divide: How to Build the Business of the Future
Closing the Knowledge Divide: How to Build the Business of the FutureClosing the Knowledge Divide: How to Build the Business of the Future
Closing the Knowledge Divide: How to Build the Business of the Future
 
Change Agents: How Consumer Centric Technology Companies Change the World
Change Agents: How Consumer Centric Technology Companies Change the WorldChange Agents: How Consumer Centric Technology Companies Change the World
Change Agents: How Consumer Centric Technology Companies Change the World
 
What I Learned About Software Marketing and Growth After 2 Years in Venture C...
What I Learned About Software Marketing and Growth After 2 Years in Venture C...What I Learned About Software Marketing and Growth After 2 Years in Venture C...
What I Learned About Software Marketing and Growth After 2 Years in Venture C...
 
It Shouldn't Be Scary to Go Digital
It Shouldn't Be Scary to Go DigitalIt Shouldn't Be Scary to Go Digital
It Shouldn't Be Scary to Go Digital
 
The 4 Ps to Sustainable Growth
The 4 Ps to Sustainable GrowthThe 4 Ps to Sustainable Growth
The 4 Ps to Sustainable Growth
 
Marketing is Dead. Build a Foundation. Ignore the Hype.
Marketing is Dead. Build a Foundation. Ignore the Hype.Marketing is Dead. Build a Foundation. Ignore the Hype.
Marketing is Dead. Build a Foundation. Ignore the Hype.
 
You Can't Growth Hack Your Way to Success
You Can't Growth Hack Your Way to SuccessYou Can't Growth Hack Your Way to Success
You Can't Growth Hack Your Way to Success
 
Marketing is Dead. Only Moments Matter - UserTesting Roadshow - 10/5/2016
Marketing is Dead. Only Moments Matter - UserTesting Roadshow - 10/5/2016Marketing is Dead. Only Moments Matter - UserTesting Roadshow - 10/5/2016
Marketing is Dead. Only Moments Matter - UserTesting Roadshow - 10/5/2016
 
It Shouldn't Be Scary to Go Digital
It Shouldn't Be Scary to Go DigitalIt Shouldn't Be Scary to Go Digital
It Shouldn't Be Scary to Go Digital
 
Marketing is Dead - Uberflip User Conference Presentation
Marketing is Dead - Uberflip User Conference PresentationMarketing is Dead - Uberflip User Conference Presentation
Marketing is Dead - Uberflip User Conference Presentation
 
Marketing is Dead - TrackMaven Digital Conference
Marketing is Dead - TrackMaven Digital ConferenceMarketing is Dead - TrackMaven Digital Conference
Marketing is Dead - TrackMaven Digital Conference
 
Marketing Team Organizational Structures
Marketing Team Organizational StructuresMarketing Team Organizational Structures
Marketing Team Organizational Structures
 
Marketing is Dead - Inbound Experience Conference
Marketing is Dead - Inbound Experience ConferenceMarketing is Dead - Inbound Experience Conference
Marketing is Dead - Inbound Experience Conference
 
Marketing is Dead - Understanding the Shifts Changing Marketing Today
Marketing is Dead - Understanding the Shifts Changing Marketing TodayMarketing is Dead - Understanding the Shifts Changing Marketing Today
Marketing is Dead - Understanding the Shifts Changing Marketing Today
 
Moments Matter : Why Technology Tips the Scale for Massive Change in Transpor...
Moments Matter : Why Technology Tips the Scale for Massive Change in Transpor...Moments Matter : Why Technology Tips the Scale for Massive Change in Transpor...
Moments Matter : Why Technology Tips the Scale for Massive Change in Transpor...
 

Recently uploaded

Governor Olli Rehn: Dialling back monetary restraint
Governor Olli Rehn: Dialling back monetary restraintGovernor Olli Rehn: Dialling back monetary restraint
Governor Olli Rehn: Dialling back monetary restraintSuomen Pankki
 
Call Girls Near Golden Tulip Essential Hotel, New Delhi 9873777170
Call Girls Near Golden Tulip Essential Hotel, New Delhi 9873777170Call Girls Near Golden Tulip Essential Hotel, New Delhi 9873777170
Call Girls Near Golden Tulip Essential Hotel, New Delhi 9873777170Sonam Pathan
 
Gender and caste discrimination in india
Gender and caste discrimination in indiaGender and caste discrimination in india
Gender and caste discrimination in indiavandanasingh01072003
 
原版1:1复刻温哥华岛大学毕业证Vancouver毕业证留信学历认证
原版1:1复刻温哥华岛大学毕业证Vancouver毕业证留信学历认证原版1:1复刻温哥华岛大学毕业证Vancouver毕业证留信学历认证
原版1:1复刻温哥华岛大学毕业证Vancouver毕业证留信学历认证rjrjkk
 
NCDC and NAFED presentation by Paras .pptx
NCDC and NAFED presentation by Paras .pptxNCDC and NAFED presentation by Paras .pptx
NCDC and NAFED presentation by Paras .pptxnaikparas90
 
2024 Q1 Crypto Industry Report | CoinGecko
2024 Q1 Crypto Industry Report | CoinGecko2024 Q1 Crypto Industry Report | CoinGecko
2024 Q1 Crypto Industry Report | CoinGeckoCoinGecko
 
Economic Risk Factor Update: April 2024 [SlideShare]
Economic Risk Factor Update: April 2024 [SlideShare]Economic Risk Factor Update: April 2024 [SlideShare]
Economic Risk Factor Update: April 2024 [SlideShare]Commonwealth
 
Unveiling Business Expansion Trends in 2024
Unveiling Business Expansion Trends in 2024Unveiling Business Expansion Trends in 2024
Unveiling Business Expansion Trends in 2024Champak Jhagmag
 
House of Commons ; CDC schemes overview document
House of Commons ; CDC schemes overview documentHouse of Commons ; CDC schemes overview document
House of Commons ; CDC schemes overview documentHenry Tapper
 
Uae-NO1 Rohani Amil In Islamabad Amil Baba in Rawalpindi Kala Jadu Amil In Ra...
Uae-NO1 Rohani Amil In Islamabad Amil Baba in Rawalpindi Kala Jadu Amil In Ra...Uae-NO1 Rohani Amil In Islamabad Amil Baba in Rawalpindi Kala Jadu Amil In Ra...
Uae-NO1 Rohani Amil In Islamabad Amil Baba in Rawalpindi Kala Jadu Amil In Ra...Amil baba
 
cost of capital questions financial management
cost of capital questions financial managementcost of capital questions financial management
cost of capital questions financial managementtanmayarora23
 
Kempen ' UK DB Endgame Paper Apr 24 final3.pdf
Kempen ' UK DB Endgame Paper Apr 24 final3.pdfKempen ' UK DB Endgame Paper Apr 24 final3.pdf
Kempen ' UK DB Endgame Paper Apr 24 final3.pdfHenry Tapper
 
government_intervention_in_business_ownership[1].pdf
government_intervention_in_business_ownership[1].pdfgovernment_intervention_in_business_ownership[1].pdf
government_intervention_in_business_ownership[1].pdfshaunmashale756
 
Amil Baba In Pakistan amil baba in Lahore amil baba in Islamabad amil baba in...
Amil Baba In Pakistan amil baba in Lahore amil baba in Islamabad amil baba in...Amil Baba In Pakistan amil baba in Lahore amil baba in Islamabad amil baba in...
Amil Baba In Pakistan amil baba in Lahore amil baba in Islamabad amil baba in...amilabibi1
 
NO1 Certified Amil Baba In Lahore Kala Jadu In Lahore Best Amil In Lahore Ami...
NO1 Certified Amil Baba In Lahore Kala Jadu In Lahore Best Amil In Lahore Ami...NO1 Certified Amil Baba In Lahore Kala Jadu In Lahore Best Amil In Lahore Ami...
NO1 Certified Amil Baba In Lahore Kala Jadu In Lahore Best Amil In Lahore Ami...Amil baba
 
The Inspirational Story of Julio Herrera Velutini - Global Finance Leader
The Inspirational Story of Julio Herrera Velutini - Global Finance LeaderThe Inspirational Story of Julio Herrera Velutini - Global Finance Leader
The Inspirational Story of Julio Herrera Velutini - Global Finance LeaderArianna Varetto
 
Market Morning Updates for 16th April 2024
Market Morning Updates for 16th April 2024Market Morning Updates for 16th April 2024
Market Morning Updates for 16th April 2024Devarsh Vakil
 
magnetic-pensions-a-new-blueprint-for-the-dc-landscape.pdf
magnetic-pensions-a-new-blueprint-for-the-dc-landscape.pdfmagnetic-pensions-a-new-blueprint-for-the-dc-landscape.pdf
magnetic-pensions-a-new-blueprint-for-the-dc-landscape.pdfHenry Tapper
 
Global Economic Outlook, 2024 - Scholaride Consulting
Global Economic Outlook, 2024 - Scholaride ConsultingGlobal Economic Outlook, 2024 - Scholaride Consulting
Global Economic Outlook, 2024 - Scholaride Consultingswastiknandyofficial
 
212MTAMount Durham University Bachelor's Diploma in Technology
212MTAMount Durham University Bachelor's Diploma in Technology212MTAMount Durham University Bachelor's Diploma in Technology
212MTAMount Durham University Bachelor's Diploma in Technologyz xss
 

Recently uploaded (20)

Governor Olli Rehn: Dialling back monetary restraint
Governor Olli Rehn: Dialling back monetary restraintGovernor Olli Rehn: Dialling back monetary restraint
Governor Olli Rehn: Dialling back monetary restraint
 
Call Girls Near Golden Tulip Essential Hotel, New Delhi 9873777170
Call Girls Near Golden Tulip Essential Hotel, New Delhi 9873777170Call Girls Near Golden Tulip Essential Hotel, New Delhi 9873777170
Call Girls Near Golden Tulip Essential Hotel, New Delhi 9873777170
 
Gender and caste discrimination in india
Gender and caste discrimination in indiaGender and caste discrimination in india
Gender and caste discrimination in india
 
原版1:1复刻温哥华岛大学毕业证Vancouver毕业证留信学历认证
原版1:1复刻温哥华岛大学毕业证Vancouver毕业证留信学历认证原版1:1复刻温哥华岛大学毕业证Vancouver毕业证留信学历认证
原版1:1复刻温哥华岛大学毕业证Vancouver毕业证留信学历认证
 
NCDC and NAFED presentation by Paras .pptx
NCDC and NAFED presentation by Paras .pptxNCDC and NAFED presentation by Paras .pptx
NCDC and NAFED presentation by Paras .pptx
 
2024 Q1 Crypto Industry Report | CoinGecko
2024 Q1 Crypto Industry Report | CoinGecko2024 Q1 Crypto Industry Report | CoinGecko
2024 Q1 Crypto Industry Report | CoinGecko
 
Economic Risk Factor Update: April 2024 [SlideShare]
Economic Risk Factor Update: April 2024 [SlideShare]Economic Risk Factor Update: April 2024 [SlideShare]
Economic Risk Factor Update: April 2024 [SlideShare]
 
Unveiling Business Expansion Trends in 2024
Unveiling Business Expansion Trends in 2024Unveiling Business Expansion Trends in 2024
Unveiling Business Expansion Trends in 2024
 
House of Commons ; CDC schemes overview document
House of Commons ; CDC schemes overview documentHouse of Commons ; CDC schemes overview document
House of Commons ; CDC schemes overview document
 
Uae-NO1 Rohani Amil In Islamabad Amil Baba in Rawalpindi Kala Jadu Amil In Ra...
Uae-NO1 Rohani Amil In Islamabad Amil Baba in Rawalpindi Kala Jadu Amil In Ra...Uae-NO1 Rohani Amil In Islamabad Amil Baba in Rawalpindi Kala Jadu Amil In Ra...
Uae-NO1 Rohani Amil In Islamabad Amil Baba in Rawalpindi Kala Jadu Amil In Ra...
 
cost of capital questions financial management
cost of capital questions financial managementcost of capital questions financial management
cost of capital questions financial management
 
Kempen ' UK DB Endgame Paper Apr 24 final3.pdf
Kempen ' UK DB Endgame Paper Apr 24 final3.pdfKempen ' UK DB Endgame Paper Apr 24 final3.pdf
Kempen ' UK DB Endgame Paper Apr 24 final3.pdf
 
government_intervention_in_business_ownership[1].pdf
government_intervention_in_business_ownership[1].pdfgovernment_intervention_in_business_ownership[1].pdf
government_intervention_in_business_ownership[1].pdf
 
Amil Baba In Pakistan amil baba in Lahore amil baba in Islamabad amil baba in...
Amil Baba In Pakistan amil baba in Lahore amil baba in Islamabad amil baba in...Amil Baba In Pakistan amil baba in Lahore amil baba in Islamabad amil baba in...
Amil Baba In Pakistan amil baba in Lahore amil baba in Islamabad amil baba in...
 
NO1 Certified Amil Baba In Lahore Kala Jadu In Lahore Best Amil In Lahore Ami...
NO1 Certified Amil Baba In Lahore Kala Jadu In Lahore Best Amil In Lahore Ami...NO1 Certified Amil Baba In Lahore Kala Jadu In Lahore Best Amil In Lahore Ami...
NO1 Certified Amil Baba In Lahore Kala Jadu In Lahore Best Amil In Lahore Ami...
 
The Inspirational Story of Julio Herrera Velutini - Global Finance Leader
The Inspirational Story of Julio Herrera Velutini - Global Finance LeaderThe Inspirational Story of Julio Herrera Velutini - Global Finance Leader
The Inspirational Story of Julio Herrera Velutini - Global Finance Leader
 
Market Morning Updates for 16th April 2024
Market Morning Updates for 16th April 2024Market Morning Updates for 16th April 2024
Market Morning Updates for 16th April 2024
 
magnetic-pensions-a-new-blueprint-for-the-dc-landscape.pdf
magnetic-pensions-a-new-blueprint-for-the-dc-landscape.pdfmagnetic-pensions-a-new-blueprint-for-the-dc-landscape.pdf
magnetic-pensions-a-new-blueprint-for-the-dc-landscape.pdf
 
Global Economic Outlook, 2024 - Scholaride Consulting
Global Economic Outlook, 2024 - Scholaride ConsultingGlobal Economic Outlook, 2024 - Scholaride Consulting
Global Economic Outlook, 2024 - Scholaride Consulting
 
212MTAMount Durham University Bachelor's Diploma in Technology
212MTAMount Durham University Bachelor's Diploma in Technology212MTAMount Durham University Bachelor's Diploma in Technology
212MTAMount Durham University Bachelor's Diploma in Technology
 

10 Criteria to Help You Compare Venture Debt Term Sheets

  • 1. // financial series 10 Ways to Borrow Wisely Criteria to Help You Compare Venture Debt Term Sheets
  • 2. John McCullough Director of Business & Corporate Development As either a key source of minimally dilutive growth funding and/ or runway between equity financings, debt is an important component of the capital structure for many VC-backed startups. Whether you’re raising your first credit line or have been working with the same lender for years, it’s important to understand how to compare venture debt offers (in very general terms, we’ll define venture debt as term financing with durations of between 3 and 5 years), either from less risk-averse venture debt funds or more conservative banks. While not exhaustive, here are 10 items to compare across competing term sheets that should, to some extent, be up for negotiation….
  • 3. 1. Loan Size // financial series
  • 4. Loan Size What sort of turn on revenue or earnings is the lender willing to give you? It may be more than you need, or less. Sizing often ranges from ~20% to 100% of the most recent venture round.
  • 5. 2. Interest Rate // financial series
  • 6. Interest Rate Not only the initial rate itself, but whether floating or fixed. A lot of term sheets these days propose a spread to prime rate, which is obviously variable; if floating, understand both the reference rate and the spread. Also be sure to know if there is a minimum (aka “floor”) rate as part of the variable construct. Currently, banks tend to hover around 5-8% total rate, while more risk tolerant venture debt firms are more often in the 10-14% range.
  • 7. 3. Interest-Only Period // financial series
  • 8. Interest-Only Period Given the cash-burn profile of many startups, lenders are willing to forgo principal repayments for a period (broadly speaking, in exchange for upside via warrants, higher collateral, or in other ways); this can range from roughly 0 to 18 months depending on the lender and profile of the business.
  • 9. 4. Term / Maturity Date // financial series
  • 10. Interest-Only Period For obvious reasons a longer term may be more desirable, and they generally range from 36 to 48 months.
  • 11. 5. Warrant Coverage // financial series
  • 12. Warrant Coverage Usually expressed as a percentage of the loan size, warrants represent the right of the bank to purchase preferred equity shares in the business — usually at a share price equal to the lower of the most recent equity round or the next equity round. If included, coverage can run from a few percentage points with banks to as high as 10 to 15% with venture debt funds.
  • 13. 6. Unused Facility Fee // financial series
  • 14. Unused Facility Fee Often banks will charge a fee on the unused portion of a credit facility (if you’ve chosen to use a revolver in addition to the term loan) as compensation for keeping the line open and assuring the borrower the funds will be there in the future at the stated contractual rate regardless of market conditions. It’s generally expressed as a small percent of the facility size and paid monthly or quarterly. These fees range from zero to a few percentage points.
  • 15. 7. Pre-Payment Penalty // financial series
  • 16. Pre-Payment Penalty Term sheets may request none, or may lay out a detailed waterfall whereby the penalty, as a percent of the loan, steps down incrementally as the pre- payment date moves closer to the maturity date (i.e. from 3% for first 12 months, to 2% in the second 12 months, and so on); typically you should expect to see 1-3% of principal. In some cases all future interest payments may be accelerated.
  • 18. Material Adverse Change A material adverse change clause allows the lender to call a loan if they deem a material change (i.e. something unpredictable) in the business to have taken place that renders the company unable to repay, or more generally, significantly increases the risk assumed by the lender. Simply put, you’d rather not be subject to a MAC clause — but if you are, the goal is to narrow the scope of the clause to the extent practical.
  • 20. Material Adverse Change While venture debt providers don’t usually require covenants, the more conservative bank lenders will often propose a minimum liquidity covenant (the dollar amount of working capital) and / or trailing EBITDA profit / loss thresholds that are tested quarterly; while not ideal, if the covenants are easily met than this may be a more acceptable ‘give’ than higher debt costs and other unfavorable features.
  • 22. Other Board observer seats, rights to invest in subsequent equity rounds, requirements to keep primary depository and operating accounts with the institution (in the case of banks only) may also appear on term sheets.