VENTURE BANKING（二）.docVIP

VENTURE BANKING Dan Kraus Joe Beek Steve King Final Project EPS 7510 May 1, 2000 Table of Contents Introduction History Background Deal Structure Risk Profile and Required Rate of Return Deal Flow Loan Approval Conclusions Exhibits Venture Banking Profile Position on Risk Chain Term Sheet Comparison Term Loan Term Sheet Venture Term Loan Term Sheet Growth Capital/Subordinated Debt Term Sheet Sample Credit Analysis for Loan Approval Committee Sample Legal Documents Introduction Until recently, most entrepreneurs thought that the financing life cycle of their business followed a predictable pattern. The company was started up with money from “family, friends, and fools,” then angels and/or venture capitalists were brought in, and finally the company was sold, brought public, or financed through conventional bank debt. It was a fact of life that no start-up business could access a normal, inexpensive, commercial loan. However, savvy entrepreneurs have learned that the normal financing model has been changed by the so-called venture banks. These are niche commercial banks that are willing to lend to VC-backed companies. In most cases, the availability of some early round debt capital provides another option for an entrepreneur to obtain critical capital cheaper, faster, and most importantly, smarter. The following paper provides the reader with information on what type of deals venture banks look for, what type of returns these institutions require, and what type of process the entrepreneur can expect when they approach a venture bank. In the Northeast, entrepreneurs are fortunate to have direct access to Silicon Valley Bank (SVB), which is the dominate player in this niche market. As the market leader, SVB is used as the primary example of our research. Where they differ, examples from Imperial Bank and Fleet Bank, their primary competitors in the East Coast market, are highlighted. This analysis was supported by interviews with the following venture ban