Why the Reputation of Your Venture Debt Lender Matters
The reputation of your venture debt lender is important, and I would put not just the individual lender that you’re talking to but the firm.
The little-known fact in venture debt is that a lot of the deals that get negotiated get renegotiated at some point in the future, and if you aren’t careful about the reputation of both the individual lender that you’re dealing both being a person and the firm, you can set yourself up for a very difficult renegotiation down the road.
What will happen is you’ll negotiate an interest-only period at the beginning of a loan and you think by the end of the interest only period the company will be profitable by then, but oftentimes companies lag.
Their performance lags the forecast, and so when you don’t hit plan which a lot of companies don’t, and you have to re-extend that interest-only period, you can reset the terms of the deal. The reputation of the lender is kind of critical and the reputation of the firm is critical because if the firm hasn’t been around for a long time with a good reputation you may have that company may be out of business by the time you renegotiate it. And you’re now we’re negotiating with somebody you haven’t been met in the future.
Meet Tim O’Loughlin, Eastward Capital Partners Investment Partner
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