Venture Capital VS Venture Debt.

Autor: Pipeline Capital

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One of the biggest concerns of an entrepreneur with a growing company is access to capital. In addition, he needs to ensure that the amount raised is adequate so that there are no failures along the way. To meet this demand, there are currently several financing options available on the market for startups, such as venture capital and venture debt. But do you know the difference between them?

Unlike venture capital, a modality where investors invest resources in companies with high growth potential and high profitability, venture debt is a financing option, through a non-convertible debt, for startups that do not have sufficient guarantees or cash generation to obtain traditional loans.

“Venture debt allows investors exposure to startups and businesses with high growth potential, but with lower risks and shorter return periods than investments via venture capital funds”, explains Gabriela Gonçalves, CEO of Brasil Venture Debt.

She also says that in Brazil this asset class is still new, but that in the United States this market represents around 20% to 25% of the source of funding for companies that are financed through venture capital institutions.

Another question that may arise when talking about venture debt is how it is remunerated in contrast to a traditional credit operation. Gabriela says that risk debt operations are remunerated through a fixed interest rate and a variable component linked to the success of the startup, while a traditional credit operation withdraws its remuneration solely through fixed interest rates, and that, in some cases, there may be a credit structuring fee and the offering of other services by the granting institution, such as payroll and current account, as other additional services.

“In this sense, it is worth noting that venture debt funds are remunerated by taking risk together with the entrepreneur, and that the traditional financial market seeks to minimize this component by restricting potential candidates and imposing conditions such as the requirement of real guarantees, the need for a solid financial history and a long-term relationship with the issuing institution”, she adds.

Article originally published by Startupi.

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Pipeline Capital

Pipeline Capital Tech Investment Group is a tech-driven advisory and investment platform that integrates intelligence, excellence, international presence, and profitable ventures for founders and investors. Established in 2012, Pipeline draws its name from a famous Hawaiian beach, as its founder is an avid surfer, symbolizing how the business world comes in waves, the opportunities rise and fade swiftly. In the business landscape, it’s crucial to be prepared to spot, anticipate, and capitalize on these waves of opportunity, so our mission is to support companies in catching the best waves and riding them with excellence to secure the best deals. We are not a traditional M&A and investment firm. Instead, we were founded and are managed by entrepreneurs who are also partners of the company. With years of expertise in Tech, Advertising, Marketing, and Finance, we possess deep knowledge of the tech sector and extensive global experience. As a Capital Tech Driven Company, we believe the best business opportunities lie in the intersection of investments and technology.

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