STARTUP MANUAL

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ALTERNATIVES TO EQUITY:
VENTURE DEBT
Raising an equity round is not the only solution to funding
a startup. Back in 2014, when we raised LegalVision’s first
round of external finance, we didn’t raise an equity round,
but rather a venture debt round, using a structure known as
a revenue loan. Since we raised our first round three years ago,
venture debt has become increasingly popular, as Partners
for Growth's Australian launch in 2016 demonstrates.
CASE STUDY: KARTHI SEPULOHNIAM,
DIRECTOR AT PARTNERS FOR
GROWTH AUSTRALIA
How Venture Debt Helped Fintech Innovator
Stay Nimble
Partners for Growth (PFG) provides custom debt solutions
to private and public technology and life science companies
as well as non-tech companies. We focus on revenue-stage
companies – above $5 million in sales – and with a growth
story. We seek to fund good companies who generally can’t
get finance from traditional lenders.
In January 2016, PFG provided a venture debt facility to
fintech innovator Nimble Australia. Nimble provides small
loans via their purpose-built tech platform. They promise
paperless applications where customers are approved and
paid quickly. Nimble required $20 million to fund their loan
book and for general working capital.
Nimble was still early in its growth cycle, so bank debt
was not a viable option. Banks prefer funding profitable,
asset-rich businesses. Most young tech companies are not
profitable and have few assets. Further, banks often
require personal guarantees to support even a small
facility. By contrast, PFG was willing to take a general
security over the business’ assets without any personal
or director guarantees.
Equity can be great to fund early commercialisation of a tech
startup. But as your company progresses, a combination of
debt and equity can work in concert to provide an optimum
mix of capital from a cost and flexibility perspective. It didn’t
make sense for Nimble to use equity to fund its loan book.
This would have diluted their shareholding, which wasn’t
necessary for circumstances where they had a proven
offering, customers and growing revenue.
PFG structured the Nimble facility as a three-year loan
with a two-year extension. Nimble pays interest on the
loan commensurate with a venture debt facility (10%-13%
per year). The deal includes customary financial reporting
(no more than what the company provides to its board) and
terms and conditions that are typical for secured lenders.
By accessing debt finance at an early stage, Nimble could
raise funds without diluting the equity pool and without
the need to give personal guarantees. Further, while PFG
doesn’t take board seats, we were able to introduce Nimble
to a number of senior C-level financial executives to the
company’s management team for advice and mentorship.
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