#BreakIntoVC: How to Break Into Venture Capital And Think Like an Investor Whether You're a Student, Entrepreneur or Working Professional (Venture Capital Guidebook Book 1)

If we really break down venture debt, it allows a company to accelerate towards the next milestone with the application of quick cash, and increases the likelihood of actually reaching that milestone, all while minimizing the equity dilution that would inevitably occur with another round of equity financing.

A small increase in churn is not necessarily a bad thing, if the dollar revenue retention increases as a result.

For the firm, venture debt is only an option if the business is cash flow positive and shows strong signs of revenue consistency. Growth firms also tend to not provide debt financing to firms that already have debt on their balance sheet. Typically, firms only provide venture debt for companies that have balance sheet debt under 20 percent of opera

The thesis of a growth firm is to give capital to a company so they can hit milestones and continually unlock value. That value is realized in future rounds of financing or through the sale of that company at a premium.

In the 1980s, if a technology company needed to build a factory or buy several pieces of equipment, companies preferred to take out loans instead of giving equity away for something that was not directly linked to hitting the next milestone.

Contracts for debt financing can also contain debt covenants, or requirements that a company may need to follow every quarter or risk defaulting on the loan. Such covenants usually require a company to hit certain performance metrics.

Since deal sizes are so large in private equity, firms really can’t afford to write billion dollar checks every few months, so they use debt financing, the act of taking out a loan in order to purchase a company.

Venture capital firms and angel groups would like to see the most developed product possible, but at this time in a company’s history—the seed stage—typically the company has little-to-no customers, little revenue and may not have reached the minimum viable product, or MVP stage yet where they have a lean but substantial version of their product.

Growth equity firms will typically write a check in order to gain a stake in the company. This is typically called equity financing, or writing a check for equity.