This document summarizes a presentation about extending a startup's runway through venture debt. It discusses how venture debt can be used to finance growth and product delays. Venture debt typically has a 6-12 month interest-only period followed by principal repayment over 30-36 months, with interest rates in the mid-single digits to low double digits. Lenders consider the probability of future equity financing and enterprise value when assessing risk. The document also outlines working capital lines of credit, recurring revenue lines of credit, and alternative financing options like bridge loans.

1. Osler, Hoskin & Harcourt LLP
Win Bear, Managing Director, Silicon Valley Bank
Marta Rochkin, Associate, Osler Hoskin & Harcourt LLP
Extending Your Startup’s Runway:
Venture Debt 101
November 20th 2017

2. SVB Overview
EXTENDING YOUR STARTUP’S RUNWAY: VENTURE DEBT 101

3. SVB Overview

4. Our Clients are Disrupters

5. Some of SVB’s Canadian Clients

6. Debt vs. Equity 101
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REPAYMENT PRIORITY

7. Debt vs. Equity 101
DEBT
• Lower risk: first money
to be paid back
• Relatively inexpensive
• Lien on company assets,
if secured
• Covenants / conditions
EQUITY
• Higher risk: lives & dies
with the company
• More expensive
• Unsecured
• BOD governance
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Debt can be very complementary to growth equity.

8. Primary Uses of Debt
• Financing Assets and/or Recurring Revenue Streams
o Working capital
o Fixed assets (capex financing)
• Financing Organic Growth
o Growth capital (Term Loans for Growth-Stage Companies)
o “Venture debt” (Term Loans for Early-Stage, Venture-Backed
Companies)
• Financing Growth by Acquisition
• Special situations
o Bridge loans (for Venture-Backed Companies with Imminent Equity
Round)
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9. “Traditional Lender” Mentality
• Lending decision based on a ratio of asset value or multiple of cash
flow
o Question: What is the correct ratio or multiple?
• Primary source of repayment: cash-flow
o Question: What is the probability that cash-flow will be sufficient
to support operations and repay the loan?
• Secondary source of repayment: collateral value
o Question: What is the probability that the liquidation value of
the assets would be sufficient to repay the loan should the cash-
flow prove insufficient?
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10. “Innovation Industry Lender” Mentality
A twist on the traditional credit model
• Primary source of repayment: cash-flow from future equity
o Question: what is the probability that the investors will provide
additional equity sufficient to support operations and repay the
loan?
• Secondary source of repayment: enterprise value
o Question: what is the probability that the enterprise value (IP,
customer base, licenses, etc.) is sufficient to repay the loan
should the venture support prove insufficient?
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11. Venture Debt & Growth Capital (Debt) Providers
Two Categories:
1) Banks (example: Silicon Valley Bank)
2) Debt Funds
3) Fintech / Alternative Lending Platforms
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12. Key Considerations-- Choosing a Debt Partner
• Reputation
o Ask for client references
• Experience & Track Record
• Costs
• Scalability / Versatility
• Network
o What additional value does my debt partner bring to the table?
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13. Venture Debt Use Cases
• High Growth
o Raise $10M Series A. 18 months of runway. Expect run-rate revenue
of $5.0M and raise Series B at 5X revenue multiple
o Close on 25% venture debt ($2.5M). Step on the gas. Raise Series B
off of $8.0M run rate!
• Runway Extension
o Hold in back pocket. Same scenario above could extend runway
another four months
• Product Delay
o Things take longer and cost more. The venture debt could back-fill a
quarter or two delay
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14. Venture Debt Parameters
• Uses of capital… FINANCING GROWTH
o General corporate purposes
o Financing specific fixed assets
• Security/Collateral
o First priority lien on all business assets
o Typically a negative pledge on IP
o No personal guarantees or investor guarantees
• Repayment and Covenants
o 6-12 month interest-only draw period followed by ~30-36 month principal
repayment
o Few financial covenants
o Standard negative covenants (i.e. consents needed for M&A, subordination
of other debt, etc.)
• Pricing
o Interest rates in the mid single digits to low double digits
o Warrants typically equal to ~0.25-1.00% fully diluted ownership
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15. Working Capital Line of Credit
• Uses of capital
o Financing working capital assets such as A/R and inventory
o Sometimes includes a portion available to finance Pos
• Security
o First priority lien on all business assets
o Typically a negative pledge on IP
• Structure
o Revolving line of credit with formula borrowing base (i.e. 80% of A/R)
o Financial covenants to measure liquidity (i.e. balance sheet covenant) &
performance to plan (i.e. income statement covenant)
o Standard negative covenants (similar to venture debt / growth equity slide)
• Pricing
o Prime based interest rates ranging from Prime to Prime + 5%, based on
liquidity levels
o Commitment fee ~0.5-1.0% and perhaps unused line fees as well
o Warrants may be included if there is an element of “venture risk”
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16. Recurring Revenue Lines of Credit
• Uses of capital
o Monetize value associated with recurring revenue
o Support sales, marketing, & product development as MRR grows
• Security
o First priority lien on all business assets
o Typically a negative pledge on IP
• Structure
o Revolving line of credit with formula borrowing base (i.e. 3x MRR)
o Financial covenants to measure liquidity & performance to plan (similar to
prior slide)
o Standard negative covenants (similar to prior slide)
• Pricing
o Prime based interest rates ranging from Prime to Prime + 5%, based on
liquidity levels
o Commitment fee ~0.5-1.0% and perhaps unused line fees as well
o Warrants may be included if there is an element of “venture risk”
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17. SRED Financing
• We often finance filed SRED for our Canadian clients.
• Sometimes we also finance accrued SRED receivables.
• Not a stand-alone product for us– we usually do this in
conjunction with another debt facility.
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18. Alternative Financing
• Bridge financing for accounts receivable
• Facility can be put in place in a matter of days
• No or limited cost unless funds are drawn
• No covenants on the business
• Easy to use – need to supply invoices
• Repayment method can be weekly payments or upon
payment of account receivables
• Not necessarily stand-alone product– may be in conjunction
with another debt facility.
• Example:

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Questions?
Win Bear
Managing Director, Silicon Valley Bank
Mobile/Direct: 919-357-6059
Email: wbear@svb.com
Marta Rochkin
Associate, Osler Hoskin & Harcourt LLP
Direct: 416-862-5682
Email: mrochkin@osler.com