Venture Credit — The Other VC
Venture Credit (or, Venture Debt) — what are we looking for and how do you know if it’s right for you?
Since OneVentures was founded in 2010, the amount of venture capital in Australia has exploded. However, venture capital isn’t the right form of capital for every company and for every use case — sometimes venture debt (also called venture credit — a loan with options) is far more appropriate.
When OneVentures with Viola Credit set out in 2017 to raise the first Australian venture debt fund, our goal was to bring this new form of capital to the Aussie market.
This week we announced that we blew way past our initial target of $40M and closed an $80M fund.
We are proud to say we have done 6 initial investments in Hometime, Edrolo, Shippit, Phocas, an undisclosed ASX company and a shortly to be announced logistics startup — and we have enough capital to do 30–40 more.
Could this be you?
In this new fund, we’re looking for excellent management teams, with proven business models, $3M+ revenue and strong unit economics, who want a far less dilutive option.
Ideally, tech/tech-enabled companies operating in the B2B SaaS, fintech, proptech, healthtech, marketplace, consumer and e-commerce spaces.
Why you should consider it
Ventures credit is an attractive option for technology companies, as it:
- Offers less ownership dilution to founders and existing shareholders
- Can be put in place a lot faster than traditional equity financing
- Provides a longer capital runway (gives you more time to achieve important milestones before a subsequent round of financing)
Why raise debt vs equity?
This can be alongside or in-between rounds, drawn-down or on call and for funding anything from acquisitions to working capital. Our goal is to be as flexible as possible.
When to use venture credit?
Who should NOT consider venture credit?
In some cases, the scale and size of your business won’t suit this product.
You might:
- Be too early stage (no equity backing, pre-Series A)
- Have not reached minimum scale (pre-revenue)
- Not have your unit economics bottomed out
Your intention towards taking venture credit also matters. You should NOT use venture credit:
- As a last resort
- In a low growth or turnaround scenario
- When repayments burden the company. DON’T OVERLEVERAGE!
- As a short term bridge to equity round
- To replace equity
- To fund pivot
So, what does our process look like, from first reaching out to signing the term sheet?
Getting investment from us is straight forward. Reach out to us through our website or a warm intro.
Our advice is to do this as early as possible (even if you won’t need funding for years) — we love to build long term relationships. We’ll keep track of your company and check in from time to time even if you’re business is too early for us.
When you are looking to do a deal, we can usually issue a term sheet within 1 or 2 weeks of first meeting.
If we issue a term sheet we will always follow through unless we find that something crucial was undisclosed.
Upon signing a term sheet it takes 4–6 weeks for DD and long-form documents to be drafted, followed by signing and funding — and that’s it.
More detail on our process here.
And finally, how do you pick a lender?
Things can go wrong in start ups. When looking at potential lenders, you need to ask:
- How did they deal with companies who didn’t hit forecasts or covenants before?
- What experience do they have in startups and acting as a venture debt lender?
- Do they have relationships with your investors or Directors?
By being part of the OneVentures platform we can offer more than other venture debt providers by providing the same networking, advice and influence as a VC, through a different product.
Reach out to us if you’d like more info on venture credit or to share your story with us — we’d love to hear from you: entrepreneurs@one-ventures.com.
