“Financing Solutions for Early Stage Businesses”
Derek Ridgley
SVB Background
Established in 1983 to serve emerging Technology
and Life Science companies
Pacific Northwest presence since 1991
Over 9,000 corporate clients nationwide
$4.4 Billion in total Assets
Publicly traded (NASDAQ: SIVB)
America’s Technology Bank
M inneapolis, MN
Seattle, WA SVB
C hicago, IL
SVB
Portland, OR SVB
Napa Valley, CA SVB SVB
Sonoma, CA SVB B oston, MA
SVB
San Francisco, CA SVB SVB
SVB
M enlo Park, CA SVB Philadelphia, PA
Palo Alto, CA SVB SVB
Santa C lara, CA SVB
SVB SVB Northern, VA
Santa B arbara, CA SVB
Los Angeles, CA SVB SVB SVB
SVB Research Triangle, NC
Irvine, CA SVB
San Diego, CA
SVB Atlanta, GA
Phoenix, AZ SVB West Palm Beach, FL
B oulder, CO Dallas, TX
Austin, TX
The Hunt for Capital
“Capital is available for just about every
opportunity. The key to finding it is to
look in the right place.”
Venture Capital Investment
($ in billions)
$100
$89.8
$75
$47.3
$50
$25 $17.5 $18.6
$12.6
$6.8 $9.8
$0
1995 1996 1997 1998 1999 2000 YTD Q2 2001
# of Deals 1,307 1,879 2,125 2,423 4,293 5,485 1,421
Debt Versus Equity
Entrepreneur Perspective: Lender Perspective:
• The more debt leverage I can • Profit margins are too thin to
use the less ownership I will take equity type risks.
need to give up. • Why should I put up the
money and get little of the
returns?
Debt Versus Equity
Equity Should Finance: Debt Should Finance:
• Intangibles - Things that • Assets - Things that have
will create great value, but a quantifiable value on the
which aren’t represented balance sheet.
on a balance sheet.
For example: Product For example: Accounts
development, market receivables, equipment,
validation, marketing, and sometimes inventory.
brand development.
Risk and Reward
High High
Founder Capital
R
R Venture Capital
E
I
W
S High yield debt
A
K
Asset based debt R
D
Low yield debt
Low Low
Risk and Reward
High High
Founder Capital
R
R Venture Capital
E
I
W
S High yield debt
A
K
Asset based debt R
D
Low yield debt
Low Low
CAPITALIZATION SOURCE
VC ALTERNATIVE BOOTSTRAP
PROFITABLE
S
T
A PRE-PROFIT
G
E
S
PRE-PRODUCT
CAPITALIZATION SOURCE
VC ALTERNATIVE BOOTSTRAP
PROFITABLE
S
T
A PRE-PROFIT
G
E
S
PRE-PRODUCT
CAPITALIZATION SOURCE
VC ALTERNATIVE BOOTSTRAP
PROFITABLE
S
T
A PRE-PROFIT
G
E
S
PRE-PRODUCT
Recognizing Risks
• Development risk – will it work?
• Execution risk – can this team perform?
• Funding risk – will equity capital be available?
Mitigating Early Stage Risks
• Structure - Covenants
• Pricing - Warrants
• Collateral - Intellectual Property
Working Capital Financing
You can borrow if you have:
• Accounts Receivable from a creditworthy company,
• due from billings on recognizable revenues,
• and if you are not at risk of going bankrupt.
BANK ABL FACTORING
FINANCIAL
COVENANTS
BORROWING BASE
REPORTING
ADVANCE RATE
REPAYMENT
AR COLLECTION
COLLATERAL
AUDITS
PRICING
BANK ABL FACTORING
FINANCIAL
COVENANTS Typically Sometimes None
BORROWING BASE
REPORTING
ADVANCE RATE
REPAYMENT
AR COLLECTION
COLLATERAL
AUDITS
PRICING
BANK ABL FACTORING
FINANCIAL
COVENANTS Typically Sometimes None
BORROWING BASE
REPORTING Monthly Weekly None
ADVANCE RATE
REPAYMENT
AR COLLECTION
COLLATERAL
AUDITS
PRICING
BANK ABL FACTORING
FINANCIAL
COVENANTS Typically Sometimes None
BORROWING BASE
REPORTING Monthly Weekly None
ADVANCE RATE 50% to 80% 80% to 90% 80% to 90%
REPAYMENT
AR COLLECTION
COLLATERAL
AUDITS
PRICING
BANK ABL FACTORING
FINANCIAL
COVENANTS Typically Sometimes None
BORROWING BASE
REPORTING Monthly Weekly None
ADVANCE RATE 50% to 80% 80% to 90% 80% to 90%
Interest - Int. & Principal Int. & Principal on
REPAYMENT
Monthly Principal on AR collection AR collection
- Maturity
AR COLLECTION
COLLATERAL
AUDITS
PRICING
BANK ABL FACTORING
FINANCIAL
COVENANTS Typically Sometimes None
BORROWING BASE
REPORTING Monthly Weekly None
ADVANCE RATE 50% to 80% 80% to 90% 80% to 90%
Interest - Int. & Principal Int. & Principal on
REPAYMENT
Monthly Principal on AR collection AR collection
- Maturity
AR COLLECTION Borrower Lock Box Lock Box
COLLATERAL
AUDITS
PRICING
BANK ABL FACTORING
FINANCIAL
COVENANTS Typically Sometimes None
BORROWING BASE
REPORTING Monthly Weekly None
ADVANCE RATE 50% to 80% 80% to 90% 80% to 90%
Interest - Int. & Principal Int. & Principal on
REPAYMENT
Monthly Principal on AR collection AR collection
- Maturity
AR COLLECTION Borrower Lock Box Lock Box
COLLATERAL Annual or Semi- Quarterly or
AUDITS Annual Semi-Annual None
PRICING
BANK ABL FACTORING
FINANCIAL
COVENANTS Typically Sometimes None
BORROWING BASE
REPORTING Monthly Weekly None
ADVANCE RATE 50% to 85% 80% to 90% 80% to 90%
Interest - Int. & Principal Int. & Principal on
REPAYMENT
Monthly Principal on AR collection AR collection
- Maturity
AR COLLECTION Borrower Lock Box Lock Box
COLLATERAL Annual or Semi- Quarterly or
AUDITS Annual Semi-Annual None
PRICING 7% - 10% APR 9% - 20% APR 18% - 30% APR
Equipment Financing
You can finance fixed assets if you have:
• Cash flow from operations to service debt
payments, or
• Sufficient liquidity and likelihood of future
liquidity to service debt payments.
Comparison of Equipment Financing
Bank Term Loan Lease Venture
Lease/Loan
Cost 7-12% 7-45% 10-20% plus
warrants
Financial One to Two Zero to One Zero to One
Covenants
Lien Blanket Specific Blanket or Specific
Cash Security None One payment to None
Deposit 50% of the loan
amount
Other Types of Financing
• Purchase Order Financing
• Cash Flow Stream Discounting
• Acquisition Financing
• Export Financing
Alternative Sources
• Credit Enhancements
• SBA
• EXIM
• Community Development Lenders
• Small Business Lines of Credit
Derek Ridgley
Silicon Valley Bank
503-574-3707
Dridgley@svbank.com