The Growing Use of Debt in Technology Companies

Figure 1: US Venture Debt Deal Activity (2006–2020) | Source: Pitchbook; *As of April 21, 2020
Figure 2: Recent Debt Deals
  • In the current environment, access to broader debt market might be limited. Lots of companies are drawing down bank lines to strengthen balance sheet. Lenders are getting more cautious and borrowers need more capital in light of operational challenges
  • Understand what the debt stack looks like; is there a bank who is a lender on top who will have preferential terms and who gets paid first in a downside scenario and what protections are in place
  • Limit the amount of leverage used in the deal. Some debt lenders will go for multiple of EBITDA whereas some debt lenders will provide lending based on multiples of ARR or against enterprise value
  • We have also seen companies that have come under stress from lenders when they miss payments or breach covenants and are forced into debt restructuring that may include sale processes when it may not be the right time to do so. Prudent financial planning can help avoid this and one should be thoughtful about how much leverage to add.

About Allied Advisers

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Gaurav is a Managing Director at Allied Advisers where he focuses on providing advisory services to Technology Companies globally

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Allied Advisers

Allied Advisers

Gaurav is a Managing Director at Allied Advisers where he focuses on providing advisory services to Technology Companies globally

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