Colin Barry

Pinnacle Ventures (EF, Thursday, Week 5)


Venture Debt => Interest (more than bank loans) + Warrants (less than VC) + Option for investment in future rounds (like VC)
Typically 3.5 year loans with 1% interest due per month. Borrower starts principal payments after 6 mo.

Purpose: another 4-6 mo of "runway" for venture. Not much dilution; enough cash to get to the next milestone/round of funding.

Good venture debt providers are not super-worried about repayment.
Don't think about it like a 30-year mortgage on a house; it's a loan to get venture to the next round of financing. As long as firm lands a B Round, the venture debt provider gets repaid. And good VCs in the A Round almost always means that there will be a B Round.

Relatedly: Series B is probably riskier for venture debt provider than Series A. Less certainty that there will be a Series C...

On borrower default:
"Debt guys can make life physical for a small company." -- Patrick Lee, Pinnacle Ventures