My Internet Notebook

a journal on software, mobile, marketing

Archive for February, 2007

How Does Venture Lending Work?

leave a comment

Venture lenders are playing a growing role in bankrolling Silicon Valley’s latest boom.

As opposed to venture capitalists, who pay cash for equity, these venture lenders generally charge double-digit interest rates on par with the interest payments on high-risk corporate bonds, known as junk bonds. Lenders typically also get potential future stakes in the companies, via warrants that can be converted into equity. The warrants convert to equity if the start-up eventually gets bought or goes public.

They include SVB Financial Group, Lighthouse Capital Partners, Hercules Technology Growth Capital Inc. and Pinnacle Ventures. Such firms typically provide loans of $500,000 to $10 million and sometimes more to fund start-up operations or equipment purchases.

For startups with stable and/or growing revenue, venture lending may be a viable option without diluting the founders’ equity too much.

Written by Y.

February 14th, 2007 at 11:09 am

Posted in Business