Structuring investment in start-up
Hi! I am currently attanding a Private Equity and Venture Capital course at my University and one of the issues I need to address is: From the venture capital fund perspective, how to structure an investment in a growing startup, if the funds require to be provided in the rather short time?
Any useful suggestions? Thank you!
If the startup has tangible assets (e.g. it sells t-shirts) you can probably structure an Asset Backed Loan with a revolving structure and then use an additional equity raise to fund the operations.
If ABL isn't possible, then just straight equity. Generally early investors will want a participating preferred security.. it the company is doing a little better, they'll settle for convertible preferred.
TBH, the question itself is weird though. Investing in startups always takes a long time as investor diligence stuff out. Unless it's an ABL or lowly levered loan (unlikely for a startup), people will be doing growth equity underwriting... takes a while.
Not sure this helps or just makes it messier.
It definitely helps a lot, thank you! After some additional research, I think the best possible solution is to use Convertible Debt financing.
Do you think it might work?
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