ANTERION GROWTH
CAPITAL GMBH
Venture Debt - the non-dilutive path to growth for companies
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At Anterion, we also advise European Venture Debt Funds.
Venture Debt is, to most investors in Europe, an unknown asset class. It is exactly what the name suggests; a loan to a venture company. A venture company is new with a little proven business model. However, when a company moves from the seeding stage into later-stage, risks for capital providers change dramatically. It is in this space that Venture Debt plays an important role in the US, and in the future increasingly so in Europe.
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Venture Debt is typically a senior secured loan with an equity kicker (warrant) and, hence, has the potential to yield higher returns than traditional senior secured loan to a more established business.
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At Anterion, we strive to widen the knowledge of Venture Debt in Europe and deliver bespoke advice to select Fund Managers.
Ultimately, the largest challenge for a newly founded company, or "start-up", is bridging the large gap between having an idea to having a profitable business.
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In the US, and to a lesser extent in Europe, private capital from "Angel Investors" is available, but at a very high cost. The reason is that many start-up's fail and investors have a high risk of losing their money. In order to compensate for this risk, the investors apply the "1-in-10" principle ("spray & pray") that make it, to compensate for the lost ones. This may seem unfair, but is a financial equilibrium as supply of capital meets demand.
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The Venture Debt market has grown out of this imbalance. Credit investors see opportunity in accessing the venture company's balance sheet and cash flow via a specific asset collateral (senior secured) which provides the lender with a higher degree of security compared to junior or unitranche credits. The potential borrower that is in a growth-and-burning-cash phase, faces the alternative of a heavy dilution from taking on capital in the form of equity from third parties, or the more attractive non-dilutive option of taking on cash flow/asset based lending in the form of venture debt.
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The outcome is a higher yield to the lender, with some upside through the warrant. The borrower gets the capital and retains the control of the company.
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Anterion believes that Venture Debt is an attractive asset class for credit investors, provided that they can source the right assets, either directly or indirectly through a talented manager.
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