Coming off of a capital injection, you can use it as leverage and push for competitive rates and favorable terms. Given the volume of VC fundraising in healthcare and biotech in 1H 2020, this is exactly the time you should be considering growth debt. The combination of using non-dilutive sources of capital to extend your cash runway to achieve value-creating milestones leads to higher returns. It’s no secret that financial leverage (utilizing debt in conjunction with equity) can help increase your overall return. Adding debt on top of equity can further your cash runway and help you reach key inflection points, ultimately allowing you to raise equity at a higher valuation. Proceeds of venture debt can oftentimes fund several additional months of operating burn to help stretch your cash runway. Venture debt allows your company to grow, while maintaining more ownership and eventual upside upon an exit. Most importantly, debt is considered “cheaper” than equity because it avoids meaningful dilution for entrepreneurs and investors alike. Venture debt can be a replacement or a complement to equity financing and there are several reasons why growth debt might be the best option for your startup. Typically structured as a three-to four-year term loan including an interest-only period, proceeds are typically used to fund working capital, growth initiatives and specific opportunities. While venture capital is financing obtained in exchange for equity, venture debt (also known as growth debt), is an alternative source of funding for fast-growing, late-stage startups. To understand why this is an ideal time to seek venture debt for life sciences, it’s important to understand what it is. What makes this an ideal time to seek venture debt To sum it up, the first half of 2020 produced the largest two-quarter investment total ever for venture-backed healthcare companies, despite financial market turbulence and setbacks to company product development, clinical trials and revenues caused by the global pandemic. Should this pace continue, the CAGR (compound annual growth rate) for venture fundraising in healthcare since 2010 will reach over 27.7%. This unprecedented level of funding flowing into the healthcare sector is promising, particularly considering the negative economic impact COVID-19 has had on other sectors. Of these companies, 10 IPO’d with a $1B+ market cap and 15 experienced a stock appreciation over 100%, according to the SVB report. In the first half of 2020, 36 VC-backed healthcare companies went public. The report analyzed biopharma, healthtech, diagnostics/tools and device investment trends and found that venture fundraising in healthcare soared to $10.4B in the first half of 2020, nearly matching 2019’s full year record.Īccording to the report by CB Insights, global healthcare funding saw significant growth in Q2’20, setting a new quarterly record (in dollars funded), with deals climbing slightly, quarter-over-quarter.Īs far as exits go, crossover led mezzanine financing (a hybrid of debt and equity financing that gives the lender a right to convert to an equity interest in the company) for first six months of the year are on record pace, which is a positive sign for continued IPO activity for the back half of the year. ![]() Silicon Valley Bank’s (SVB) Mid-Year Report 2020 for Healthcare Investments and Exits found the healthcare sector to be performing exceptionally well, despite the uncertainty of COVID-19. A report from CB Insights shows that venture-backed deals in these areas have been surging, creating a major inflow of new funding into the market. In turn, that demand has been reflected in the market. Record-breaking influx of capital into healthcareįrom telehealth to mental health, COVID-19 related healthcare needs have been rising steadily. In the last six months, record-level capital investments have been made in the healthcare and biotech sector, making this the ideal time to seek venture debt for life sciences. From access, to testing, to efficiency, one thing remains certain there is room for improvement and investors have been stepping up to make that happen. ![]() A glaring spotlight has been cast on our healthcare system, creating a universal desire for something better. Five months into a global pandemic, cases continue to increase and there is no immediate end in sight.
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