Venture Debt Complements Equity Financing and Optimizes Capital Structure

Debt is intended to complement equity. By using combinations of appropriate amounts of equity and subordinated debt capital, entrepreneurs, management teams, and equity sponsors can reach important development milestones. Hercules works alongside venture capitalists and other equity sponsors to help entrepreneurs get more from their equity dollars by providing the extra time or resources needed to reach key growth milestones, such as securing a first customer, shipping a new product, or purchasing equipment needed to scale the business. Achieving additional milestones normally results in higher valuation and a more successful subsequent round of financing, thereby reducing dilution for current stakeholders. It also helps venture capital funds leverage their capital, making it a smart financing solution for the management team and investors alike.

Preserve Equity Ownership and Foster Lower Cost of Capital

Capital efficiency is an essential success factor for high-growth companies. Hercules’s debt financing is an alternative source of capital for equity-backed companies, helping them get more from their equity dollars and providing access to low-cost capital that often minimizes dilution for both entrepreneur and equity backer.

Insurance Policy for Achieving Growth Milestones

From a financial-planning perspective, venture loans can be an attractive insurance policy against having to seek new funding at a lower valuation because key milestones have not been achieved. A venture loan can provide the extra breathing room needed to reach key milestones, which in turn makes raising the next round of financing easier and helps boost valuation. If you meet the milestones and borrowing turns out to be unnecessary, paying interest on loans is significantly less expensive than financing the entire business with equity.