Case Study: Utilizing Growth Capital Financing to Maximize Runway Extension

Background

A late stage Venture Capital backed Bio-Tech company was seeking debt to extend its runway. However, the company had very little collateral with which to secure debt financing. This case study illustrates the benefit of Growth Capital (also known as an “airball” by lenders or ”Venture Debt”) as a form of debt financing for firms with limited tangible collateral.

Client Profile

Industry: Bio-Tech
Stage: Late
Investors: Recently raised $70MM from top tier VCs in tranches
Burn: $1.87MM / Month

Evaluation

DAG was engaged by the client at the beginning of the debt acquisition process. We began looking for a combination of venture debt and equipment financing. The client already had an equipment line in place but wanted to refinance because the loan terms severely limited financial flexibility. We asked lenders to propose on a growth capital line with a draw down period of approximately one year, in addition to a refinancing of the current line.

Debt Needs

The company sought minimum debt financing of $11.5MM:

• Takeout of existing equipment financing – $1.5MM
• Venture Loan – $10MM with a one year draw down period

Financing Goals

Our explicit goals for the new round of financing were:

• Maximize future financial flexibility: Secure a venture loan that would not require a lien on IP and which would allow the firm to acquire more debt, specifically an equipment loan
• Significantly extend runway: Secure a takeout of existing equipment loan that would increase runway. The equipment loan in place required all accounts to be maintained with the lender, providing a loan that did not extend the company’s runway in any meaningful way
• Reduce overall cost: Find lowest IRR alternative

Lender Response

Several lenders submitted proposals for both the venture loan and the equipment loan. After careful comparison we determined that no single lender had a great combination loan. We therefore decided to utilize two separate lenders. We then negotiated a carve-out for a specific asset lien for the equipment portion from the all asset lien attached to the growth capital loan.
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