Venture Debt is a loaded term. It can mean different things to different startups. And it can come in all different shapes and sizes.

The two most common structures are Revolving Lines of Credit and Term Loans.

Think of Revolvers like giant credit cards, where you can run up a balance, pay it down, and then run it up again - just remember to stay below the limit.

Revolvers are great for short term needs, like spikes in payroll (bonus season), big vendor pre payments, and working capital needs (stocking inventory to prepare for busy season - not that I’d know; I’ve never sold anything you can touch, lol).

On the other hand, Term Loans are like a big whack of cash generally reserved for larger priced items, like, say, another company.

Term Loans are more like a mortgage than a credit card. You can prepay it to make it go away, like a mortgage, if you fall ass backwards into excess cash (I’ve done this after raising an equity round).

In my simple mind, Revolvers are great to smooth for fluctuations in the natural course of the business, while Term Loans are great for preserving equity and avoiding dilution on bigger commitments.

It’s common for companies to set both structures up in tandem, and have the flexibility to pick which one to use based on the scenario they’re faced with. They’re both insurance policies in a sense - you don’t need them until you really fucking need them.

This is our second of three posts on cash management.

Part I: Bank Accounts (LAST WEEK’S POST)

  • Stages Covered:

    • Startup

    • Growth

    • Maturity

  • *Redflags*

  • Investment Policy Template you can download

Your Complete Guide to Cash Management (Part 1): Bank Accounts

February's three part series on cash management for tech startups

www.mostlymetrics.com/p/your-complete-guide-to-cash-management

Part II: How to Negotiate Your Venture Debt? (THIS WEEK’s POST)

  • Revolvers vs Term Loans

  • Fees

  • Typical Debt Covenants

  • Negotiation Points

  • Venture Debt Players and Sizing

  • *Red Flags*

Part III: 13 Week Rolling Cash Flow Forecast (NEXT WEEK’s POST)

  • How cash enters the building

  • How cash leaves the building

  • 13 week forecast template you can download

In this post we’ll give you illustrative examples, break down the key differences between the different types of venture debt, define common terms, cover the big players to be aware of, provide negotiating tips (from real world experience setting them up myself), and call out some red flags.

Subscribe now, or you’ll breach your onerous debt covenants.

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