I am not referring to venture debt, i am specifically asking about the use of facility to
- Dividend recaps (possibly when the venture has shown 2-3 years of FCF)
- Bridge the equity acquisition (seems unlikely)
Appreciate someone from the VC space that have written/seen IC memos to shed some light on you guys boost IRR besides banking on the upside plays.
2-3yrs FCF? For a VC backed company.... Hah.
In all seriousness, it's likely non-existent, for some of the deals i've worked on, we've included the assumption of having family office extend a credit facility to the startup if they required significant amounts of WC to scale. I'd think about it this way, there is already so much risk associated with VC investments, I don't see why we'd choose to add leverage (more risk) to early stage investments. In these transactions, we're not taking controlling positions where we have freedom to decide how to allocate any FCF. Most of the time early stage portco's retain any use all FCF for growth, so we wouldn't likely receive any of that to pay down a debt vehicle used in an investment
Great insights! Thanks
1 will never happen. 2 does all the time.
For bridging of the acquisition cost, can you help me understand how? For say an early stage VC, I find it hard for them to forecast near term predictable cash flows to justify the bridge
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