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    Venture Debt Qs

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    Lenny Li
    1. Venture debt financing may be suitable for ABC and XYZ for three reasons: 1) It would minimize dilution of existing investors, 2) It could provide a bridge to the next round of financing if equity investors are not interested now, and 3) It may provide a cheaper cost of capital than equity. 2. Venture debt may not be appropriate for ABC because it is not being done in conjunction with an equity round, and the lack of existing investor interest could be a negative signal and indicate the company is cash flow negative. 3. Based on ABC's balance sheet, an appropriate working capital loan ceiling for PQR Bank to propose would be $8.5 million. This follows the standard rule

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    Venture Debt Qs

    Uploaded by

    Lenny Li
    265 views1 page
    1. Venture debt financing may be suitable for ABC and XYZ for three reasons: 1) It would minimize dilution of existing investors, 2) It could provide a bridge to the next round of financing if equity investors are not interested now, and 3) It may provide a cheaper cost of capital than equity. 2. Venture debt may not be appropriate for ABC because it is not being done in conjunction with an equity round, and the lack of existing investor interest could be a negative signal and indicate the company is cash flow negative. 3. Based on ABC's balance sheet, an appropriate working capital loan ceiling for PQR Bank to propose would be $8.5 million. This follows the standard rule

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    1. Venture debt financing may be suitable for ABC and XYZ for three reasons: 1) It would minimize dilution of existing investors, 2) It could provide a bridge to the next round of financing if equity investors are not interested now, and 3) It may provide a cheaper cost of capital than equity. 2. Venture debt may not be appropriate for ABC because it is not being done in conjunction with an equity round, and the lack of existing investor interest could be a negative signal and indicate the company is cash flow negative. 3. Based on ABC's balance sheet, an appropriate working capital loan ceiling for PQR Bank to propose would be $8.5 million. This follows the standard rule

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    265 views1 page

    Venture Debt Qs

    Uploaded by

    Lenny Li
    1. Venture debt financing may be suitable for ABC and XYZ for three reasons: 1) It would minimize dilution of existing investors, 2) It could provide a bridge to the next round of financing if equity investors are not interested now, and 3) It may provide a cheaper cost of capital than equity. 2. Venture debt may not be appropriate for ABC because it is not being done in conjunction with an equity round, and the lack of existing investor interest could be a negative signal and indicate the company is cash flow negative. 3. Based on ABC's balance sheet, an appropriate working capital loan ceiling for PQR Bank to propose would be $8.5 million. This follows the standard rule

    Copyright:

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    Download as DOCX, PDF, TXT or read online from Scribd
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    1.

    You are a partner at ABC Capital (ABC), which is the lead investor in XYZ Company (XYZ or the Company). ABC holds about a 50% ownership stake in XYZ. XYZs last round of financing (Series C) occurred in late 2009, and the Company is expected to run out of cash in early 2012, at which point it will seek a Series D round of financing. XYZ would like to raise additional capital now for working capital financing, however ABC is not willing to infuse additional investments until the Series D financing. Why might venture debt financing be suitable for ABC, in the eyes of XYZ? Minimize dilution of existing investors Provide bridge to next round of financing if equity investors have no appetite to invest now Cheaper cost of capital

    2.

    Based on what you know about ABC, why might venture debt not be appropriate for the Company? Not done in conjunction with an equity round Lack of existing investor interest could be a negative signal Cash flow negative

    3.

    Now assume the role of an analyst at PQR Bank, a provider of venture debt. The partners have voted to submit a term sheet to ABC, and they have asked you to estimate an upper lending limit. Based on the most recent quarter balance sheet snapshot (shown below), what would you suggest as a working capital loan ceiling? ABC Balance Sheet Values in $000s Current Assets Cash Accounts Receivable Inventory Total Current Assets Total Non-Current Assets Total Assets Current Liabilities Deferred Revenue Accounts Payable Total Current Liabilities Total Non-Current Liabilities Shareholders' Equity Total Liabilities and Equity -

    $4,000 10,000 1,500 $15,500 $10,000 $25,500

    $5,000 6,500 $11,500 $5,000 $9,000 $25,500

    Standard rule of thumb is about 85% of A/R, or in this case $8.5M

    4.

    You are tasked with determining an appropriate debt structure for the Company. You have internally calculated the Companys monthly cash burn to be approximately $1M per month. What would be an appropriate upper limit for total monthly debt service (interest + principal amortization)? Debt service should not exceed 10-20% of monthly cash burn, or $100-200k in this example

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