All Money Is Not Created Equal

Chapter 10What a Deal with Debt Looks Like

For all the mystery around venture debt, doing a deal is usually a relatively straightforward process. In this chapter, I will demystify it further. The first thing to know about venture debt lenders is that the world is divided into early-stage lenders and late-stage lenders.

My business, Runway Growth Capital, lends to late-stage and growth-stage companies because our investors appreciate the added protection (lower risk) associated with larger, more mature companies. While the average company we lend to is 13 years old and has revenues averaging in excess of $50 million, they have yet to reach profitability.

Although they are still investing in growth, there's a path to profitability and sufficient evidence around both the technology underpinning the company and the business model to be able to make an informed decision.

While Runway is focused on the most mature pre-profit companies, other venture lenders focus on earlier-stage companies. For example, Brandon Child, with Costella Kirsch, targets very-early-stage businesses with strong prospects for future growth. He says there is a common perception among bootstrapped and angel-backed companies that you can get venture debt only if you've raised capital. “While that's often the case, it's not always true,” he says. “If a non-venture-backed company comes to us, we're going to look at the company, not the capitalization table.”

Specifically, as part of their analysis, they'll look ...