A common problem facing startup founders is how to adequately fund their businesses from inception through profitability. Many rely on equity raises to climb up the J-curve, but the dilution that results is often a hefty price to pay. Fortunately, that isn’t the only option. Venture debt is a potentially attractive alternative that founders tend to under-utilize. Whether you’re looking for a source of growth capital with minimal dilution, a way to extend your runway between equity financings, or both, venture debt is an important component of the capital structure for many venture-backed startups. What’s best is that you don’t need to be an expert in debt financing to make venture debt work for your business. What you do need to understand, however, is how and when to access the venture debt markets. Read more here: https://openviewpartners.com/blog

1. VENTURE
DEBT GUIDE
Tips to guide your company through the venture debt ecosystem
and fundraising process

2. 1. Venture Debt Overview
2. Representative Venture Debt Diligence List
3. Appendix
TABLE OF CONTENTS
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3. VENTURE DEBT OVERVIEW

4. • 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 venture-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 optimize your debt
capacity, either from banks, more aggressive venture debt funds ((higher risk
appetite, but higher cost), or both.
• This document provides an overview of tips for running a debt raise process,
for choosing the right lender, as well as terms you can expect to see, and
hopefully negotiate, during a debt raise process.
INTRODUCTION TO VENTURE DEBT
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5. • A form of financing for early-stage businesses that provides non-dilutive or
minimally dilutive capital (as debt) to borrowers (your company)
• Venture debt sits most senior to equity in a liquidation event – lenders get
paid out first – but do not participate in any upside (it isn’t ownership)
• In addition to being a non/minimally dilutive form of capital, raising venture
debt can also meaningfully extend the runway between equity capital raises,
thus allowing early-stage businesses to hit key benchmarks and not pre-empt
a raise due to increased burn associated with growth
• Used correctly, venture debt can be an extremely powerful tool for a venture
backed business to accelerate trajectory; venture debt can be raised in
conjunction with an equity raise or any time before or after
WHAT IS VENTURE DEBT?
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6. 1. In conjunction with an equity round; reducing dilution and founder distraction
from having to consider another raise sooner
2. As cash bridge to the next milestone or equity raise when needed; to fund to
profitability or prevent a bridge/down round during a difficult period
3. Funding more predictable cash outlays; offers an efficient way to fund
working capital or other capital expenditures
4. Provide additional insurance runway for the business without having to
consider valuation implications (debt isn’t a priced round of equity)
WHEN TO RAISE VENTURE DEBT?
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*Note, lenders typically underwrite as a multiple of cash on hand or of ARR

7. VENTURE DEBT VS. EQUITY
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`
Venture Debt
Working Capital Loans
• A/R Lines
• Inventory Lines
• Lines with cash covenants
Equity
• Equity
• Convertible Notes
Scale
&
Flexibility
Dilution

8. Annual
Recurring
Revenue
(ARR)
Stage of Investment
Bootstrapped Seed/Angel Series A Series B & Beyond
$1-2M
$5-10M
$10M+
0
Venture Banks
Structure: Term Loans & Revolvers
Interest Rate: 5-8%
Warrant Coverage: 1-5% of loan
Seniority: Senior lien on assets
Duration:1-4 years, 6-12 mo. interest only
Covenants: Situationally-dependent
Loan Size: 3-6x MRR depending on scale
Debt Funds
Structure: Typically Term Loans
Interest Rate: 9-13%
Warrant Coverage: 8-12% of loan
Seniority: Senior, Mezzanine, Subordinated
Duration: 3-6 years, 6-18 mo. interest only
Covenants: Rarely
Loan Size: Larger (potentially 100% last round)
TYPES OF PARTIES: LENDER ECOSYSTEM
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1. Emerging lenders such as Pipe, ClearBanc, etc. are increasingly working with larger companies to provide large non-dilutive financing in the form of lending against specific subscription contracts.
Revenue Lenders1
Structure: Term Loans & Revolvers 1-2x total repayment cap with
monthly payments based on revenue
Interest Rate: ~15-25% effective rate
Warrant Coverage: Rarely
Seniority: Senior or carve out
Duration: 3-5 years
Covenants: N/A
Loan Size: 4-6x MRR

9. • Establish Priorities, ie. cost, Check size? Near-term cash flow? Dilution?
• Start by discussing options with banks, they’re cheaper
• Funds are best if you require more flexibility, but it will cost you
• Ask your investors for input and introductions…OV has extensive relationships!
• Negotiate early and often, and be direct around what your wants/needs are
• Aim for 3-5 term sheets in order to create leverage between prospective lenders
• Build a side-by-side matrix comparing term sheets to share with your board. Graph
interest rates, amortization schedules and fees to compare costs.
• Conduct references! Especially with the lenders’ customers, incl. those who have
been through default or near default situations. Ask the lenders for the references.
TIPS: RUNNING A DEBT RAISE PROCESS
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10. Economic Terms
1. Interest Rate
2. Loan Size
3. Duration of Loan
4. Interest-Only Period
5. Warrant Coverage
6. Fees
7. Prepayment Penalty
KEY TERMS IN COMPARING OFFERS
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Control Terms
9. Covenants
10. Collateral
11. Material Adverse Change (“MAC”) Clause
12. Relationship Requirements
13. Reporting Requirements

11. KEY ECONOMIC TERMS
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Economic Terms
Interest Rate Loan Size Duration of Loan Interest-Only Period
• Access not just the rate itself, but
whether it’s fixed or floating
• Most term sheets propose a
spread over the Prime or LIBOR
rate, understand both the
reference rate and spread
• Be sure to know if there is a
minimum (aka “floor”) rate as
part of the variable construct
• Currently, banks tend to hover
around 4-8% total interest rate,
while more risk-tolerant venture
debt firms are often in the
9-13% range
• What sort of multiple on revenue
or earnings is the lender willing
to give you? It may be more or
less than what you need
• Loan size varies based on
company performance but
typically ranges from
~20-100% of the most recent
or contemplated venture round
• Durations range from 3-5 years
with banks typically on the
shorter end and funds on
the longer
• Generally longer-term loans are
more attractive, as they allow
for more time to be spent using
the capital versus thinking about
a refinancing event
• Given the cash-burn profile of
startups, lenders are often
willing to forgo principal
payment for a period (although
generally in exchange for
increased upside via warrants,
higher interest, or mechanisms)
• The typical interest only period
ranges from 0-24 months

12. KEY ECONOMIC & CONTROL TERMS
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Economic Terms (cont’d) Control Terms
Warrant Coverage Fees Prepayment Penalties Covenants
• Usually expressed as a % of the
loan size, warrants give the
lender the right to purchase
equity shares – usually at a
share price equal to the lower of
the most recent equity round or
the next equity round
• Coverage ranges from 0.5%
with banks to as high as 10-15%
with venture debts. Resulting
dilution is typically between 0-
1%
• The relationships between
warrants and interest rates are
seesaw like, with lower of one
you get higher of the other
• Fees typically include some
combination of:
Origination/Success, Closing
and in the case of a revolving
credit facility, Unused fees
• Origination fees are very
common and typically run 0.5-
2% of loan
• Closing fees are less common
and run 0-1%
• Unused fees apply only to
revolving credit facilities are
typically 0.1-0.5% of the unused
amount of the facility
• Fees are an area that
companies should always look
to negotiate
• Often term sheets will lay out a
sliding scale whereby a penalty,
expressed as a % of the loan,
steps down incrementally as the
prepayment dates moves closer
to loan closing (e.g. 3% within
12 months of close, 2% within
24 months, and so on)
• In some cases, particularly with
debt funds, all future interest
payments are accelerated. This
is not a given and can be
negotiated
• Non-financial covenants
(“negative basket”) are
common, usually requiring
lender approval around M&A,
issuing dividends, raising capital,
or material commercial
agreements
• Financial covenants, less
common (typically for larger
loan sizes and more mature
businesses) are tests the
company must meet – usually
relating to minimum liquidity
(working capital), revenue or
EBITDA projections.

13. KEY CONTROL TERMS
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Control Terms (cont'd)
Collateral “MAC” Clause Relationship Requirements Reporting Requirements
• Typically, both banks and funds
will require first priority security
interest in all assets of the
borrower including IP or require
IP to be negatively
• Assets include cash, receivables,
equipment, inventory, etc. A
negative pledge on IP means
that while IP is free and clear or
any lien, you cannot pledge it to
any other party
• A Material Adverse Change
(“MAC”) 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 significantly
increases the risk assumed by
the lender
• Ideally avoid, but if you are
unable to, the goal is to be
working with a lender that’s
been known to avoid
employing it
• Rarely used by funds, more
often by banks
• Typically, there are no
relationship requirements from
funds, but are a big part of how
banks can offer lower rates.
• Banks typically will require all
primary operating accounts to
be moved to the lender within a
specified timeframe and that all
banking services are routed
through them (e.g., FX
transactions, ACHs, etc.)
• Both funds and banks will
demand various reporting
requirements in order to monitor
the health of the company
they’re lending to.
• These can be as simple as fiscal
year end financial statements or
as strenuous as a package that
includes MRR projections, board
decks and quarterly/yearly
financial statements
• Not as much of a lift of more
mature businesses but for
younger companies something
to consider

14. • “All in Cost” – lenders will target a specific IRR for their facility based on the
combination of placement/origination fees, interest rates, early termination
or other backend fees as well as warrants for common stock
• Compatibility – ease with which to do business, speed of execution,
knowledge of the sector, overall responsiveness, general rapport, as well as
the lenders reputation (for flexibility) during unforeseen financial distress
• Other terms – additional terms, such as board observer seats, rights to
investment, requirement to move all banking relationships / cash account to
lender (this is standard and non-negotiable with bank term sheets)
ADDITIONAL CONSIDERATIONS
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15. REPRESENTATIVE VENTURE
DEBT DILIGENCE LIST

16. • Two years of audited financial statements (as available)
• Prior FY financial statements by month
• YTD financial statements for current FY
• Financial projections (BS/IS) for current FY by month and subsequent FY
(monthly, as available)
• Most recent three months end AP and AR aging
• Most recent Articles of Incorporation
• Most recent Cap Table
• Most recent 409A valuation
• Recent Board or Investor Presentation
• SaaS metrics (e.g., CAC and Payback, logo & net retention, LTV, etc.)
• Any other metrics/KPIs that are managed to / tracked
REPRESENTATIVE DILIGENCE LIST
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17. APPENDIX | VENTURE DEBT
FUNDRAISE SCENARIOS

18. RAISING A SERIES B
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Consider the below fictitious situation for an early-stage (Series A) company:
A SaaS business, SaaSCo, raised Series A funding from SomeName Ventures one year ago and is looking to raise a
$10M Series B with a new lead investor. Both SaaSCo and SomeName believe in the company’s potential and want to
minimize dilution from the new capital. To accomplish this, SaaSCo is considering a venture-debt term loan to
complement the Series B equity financing.
Series B Assumptions:
• Total Capital Raised: $10M
• Pre-Money Valuation: $20M
• Current Management Ownership: 40%
Scenario A | 100% Equity Scenario B | 60% Equity, 40% Debt
SaaSCo raises the full $10M in equity SaaSCo raises $6M in equity alongside a $4M term
loan with warrants for 7% of the loan value ($280k)
Sellers give up 13.3% of the company Sellers give up 9.6% of the company

19. IMPACT OF VENTURE DEBT ON RUNWAY
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While paying down the loan will increase the company’s burn, financing the entire Series B with equity
only gives Company SaaSCo three additional months of the runway at the cost of significant dilution
Scenario A | 100% Equity Scenario B | 60% Equity, 40% Debt
Common Assumptions:
• Company has $2M in cash prior to financing
• Company’s burn, excl. debt pmts is constant at $600K
• Series B closed immediately (month 1)
Loan Assumptions:
• 6 months of interest-only, then 30 months of interest + amortization
• 9% cash interest, 1% fee, 5% back-end payment
• Loan is drawn immediately (month 1)
--
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
Initial Cash Financing Monthly Burn
Financing
Initial Cash
--
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
Initial Cash Financing Debt Payments Monthly Burn
Financing
Initial Cash
Month 20:
out of cash
Month 17:
out of cash

20. IMPACT OF VENTURE DEBT ON SERIES C
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While Company SaaSCo must eventually repay the loan, management can reduce dilution by having
raised less equity in their Series B, even if they must raise additional equity in a Series C to fully repay
the loan
Series C Assumptions:
• Company SaaSCo wants to raise $20M in a Series C to fund the company to profitability
• The company plans to raise an additional $5M to compensate for the principal and interest payments on their venture debt
Typically, would instead refinance the loan to increase the amount of debt on the balance sheet to reflect increased scale of the company, likely
holding the debt until a majority liquidity event
No Increase in Valuation ~2x Increase in Valuation ~2x Increase in Valuation
($USD in thousands) All Equity w/Debt All Equity w/Debt All Equity w/Debt
Series B Post-money $30,000 $26,000 $30,000 $26,000 $30,000 $26,000
Series C Pre-money $30,000 $26,000 $60,000 $60,000 $90,000 $90,000
(+) Series C Primary $20,000 $25,000 $20,000 $25,000 $20,000 $25,000
Series C Post-money $50,000 $51,000 $80,000 $85,000 $110,000 $115,000
Seller Ownership % 16.0% 15.4% 20.0% 21.4% 21.8% 23.8%
Ownership w/ Debt % -3.5% +7.1% +8.9%

21. DISCLAIMER
This document is for informational and illustrative purposes only and has been prepared by OpenView Advisors, LLC. This information contained in this document shall not
constitute an offer, solicitation, or recommendation to sell or offer to purchase any securities, investment products, financial instruments or investment advisory services, nor will
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All investments involve substantial risks and there can be no assurance that any investment objectives described herein will be achieved. All information and forecasts
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22. THANK YOU!
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OpenView Corporate Development Team
Sam Johnson
samj@ov.vc
Vinnie McSweeney
vinnie@ov.vc