The Actors (and Directors) in the Debt Market

Capital Advisors Group is a Boston area-based institutional investment advisor that has been helping venture-backed companies invest their cash assets for more than 25 years. Its debt finance consulting division helps early stage companies, both public and private, determine their optimum capital structure, identify appropriate lenders, source term sheets and negotiate debt financing deals.

Executive Summary

CAG’s debt finance consulting division (formerly Debt Advisors Group), was founded in 2003 with the goal of providing market clarity and client guidance in the rapidly changing debt financing landscape. The goal of this paper is to provide insight into the debt market from an insider’s perspective. In doing so, we hope to demonstrate the need to possess a deep understanding of the debt market and its active lenders when seeking to leverage equity with debt financing.

A Brief History of Venture Debt

Financing projects and growth through debt has long been a staple of modern corporate economics. However, debt for companies which have very little credit history, a relative lack of fungible assets, negative cash flow and little to no revenue (often for 2+ years) in the past presented an untenable risk for many traditional bank lenders. Therefore, early stage companies with a need to develop products, continue R&D or build out operations, primarily sought equity investment, which resulted in a potentially significant dilution to fund their goals.
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