The Exchanges

Q What I've been taught is that investors don't want to invest in a company that has debt Because they feel like the money they're giving you is being used to pay off debt rather than fuel growth. So how can you justify deleveraging to a future investor?

A I don't think that what you were taught is inaccurate. I think that the devil is always in the details. There's a big difference in paying off a dollar a month of a loan versus not paying anything and paying everything at the End of the loan. And what I mean is that by the time an investor looks at your round, let's say you're raising 18 months after you've raised your debt and have started repaying, what the investor is looking at is a much smaller loan outstanding quantum as compared to if you didn't pay half of that back and you're still sitting with paying off the entire sum of the loan that you initially borrowed at the end. If you had borrowed five and you paid back half, That would be 2.5 that a potential investor is seeing. If you borrow five and you didn't pay anything off, then that's five. And from an investor standpoint, the way the cash goes out of a company and the speed of that plays a big part in what they would be worried about.

AI assessment note: “what the investor is looking at is a much smaller loan outstanding quantum”

Q another five months to make that happen. And the VC's like, well, all right, well, you know, I'll just, I'll sit back and I'll wait, come to me when you're ready. Whether you're helping someone or you're doing it yourself, it's hard. What's the most common way that someone finds you? Is it the investor trying to help their startup or is it a startup trying to get more money?

A It's actually a bit of both. Typically how people find us is, is a matter of how They look at utilizing what we do for their companies, and I'll, I'll shed a little bit more light on that. You know, us as Venturedette guys, we, I think, have the fortunate or unfortunate role of being both a banker to the company, as well as a banker to the founder. Traditionally, if you rock up to a bank, you, it's, it's separate people. There's a private banker, there's a wealth There's a person for you to talk to as an individual, and there is a merchant banker for you to speak to as for your business, and we have to do both those things. So the difference really comes in the form of what is a founder or company trying to achieve from raising this debt? Now, if it's a matter of dilution, or if it's a matter of wanting to cheapen your cost of capital, that cost Savings. Typically it's to the founder and not to the company. If I, as a founder raise equity, I'm diluting my shares. If I, as a founder raise debt, the company is paying the interest to the lender. So the messaging and the utility really sort of differs. We get more introductions from, from VCs when there's a specific utility, a specific use case that they want us to Uh, explore. So for example, if a B to B SaaS company has a growing receivables book, or if a hardware company needs, you know, more financing to, uh, for inventory or p…

AI assessment note: “It's actually a bit of both. Typically how people find us is”

Q Are VCs your competitors? You get leads from them, but it feels like you're also trying to compete with them for startups' attention.

A We don't see ourselves as competitors. We see ourselves really as a synergistic party, a partner to, to what they do. You know, that being said, I think, uh, there's always going to be a level of competition between capital providers, be it venture debt versus venture capital, or even venture capital versus venture capital, and I think that part of the equation is there and remains, and will remain, and is healthy. Generally, they understand that the value we bring to companies is different. What's more important is them understanding us and who we are, and vice versa, because when you understand a lender in terms of Where their money is coming from and how, uh, whether or not they are a responsible party, those things could affect anyone's portfolio companies going forward. So, you know, we always make sure that, uh, as far as possible, our communication channels with the VCs are extremely open. Uh, we're happy to share insight and info about the companies we work with, especially the portfolio companies of those VCs. And, you know, bottom line is be honest.

AI assessment note: “We don't see ourselves as competitors. We see ourselves really as a synergistic party”

Q You mentioned talking about the process. So I want to go a little bit deeper on that. So why would a founder choose to work with you and what is your process for determining whether or not to loan them money?

A So typically when we start to look at whether or not a company makes sense for us to lend to, there are certain parameters that generally we look at. The kind of companies that we look for as a start, they are companies that Are in the technology space and that they're burning money. So they're not profitable. There's still a cash burn for growth, et cetera. So we look at the cash balance, and then we look at the business model and try and assess whether or not we believe a company can either be a market leader in its own right, in its own vertical, or achieve some sort of sizable market share. Um, the next thing we look at is essentially the cap table. And whether or not there is the presence of one VC and two VCs that we are familiar with and that we've worked with before and have relationships, et cetera. So these things help us to assess the ability of a company to be able to stay healthy and continue to grow such that they are able to at least raise an additional funding round. In terms of founders wanting to work with us, The value that we bring from the financial product that we put forward, that value differs from what VCs provide, so clearly it's a cheaper option, and one in which a founder could then utilize to actually help grow his business by the same point of time, protect their shareholding base. Which ultimately, if all goes well, and if we're talking about a co…

AI assessment note: “In terms of founders wanting to work with us, The value that we bring”