Venture
Debt is a way a business can obtain finance without giving away as much equity
as venture capital may demand. It comprises a Loan and Warrants. The Warrant
provides the investor with an opportunity to make a higher return if the
investee company is successful. The Loan, which is made to a borrower that has
a high growth rate, is designed to boost its progress and help it make what is
called ‘a step change’ forwards. It can
be used to accelerate growth ahead of a key value generating event such as a
future equity round, an IPO, or a trade sale. It can be used to part fund an acquisition,
a management buyout or an IPO. Venture Debt is secured against the value
of the company rather than specific assets, such as plant and machinery or a building.
The
borrower sells less equity than required under a Venture Capital investment
however the Investor does not have to wait for an unknown period to release his
monies as the debt must be repaid. Investors should note that this type of
investment is considered high risk, investment returns are not guaranteed, and
you may lose some or all the capital that you invest.
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