An alternative route to finance for founders
Many companies face a dilemma when raising their next round: how to keep the lights on without excessive equity dilution at the "old" valuation.
Most companies end up bridging the new round with a convertible loan note or similar which gives a 20-25% discount at the next raise valuation.
As bridging periods tend to be c.6 months, this is a very expensive form of finance, equating to 40-50% annualised. The reason many go for this option is because it is the easy one which takes up relatively little management time at a point in the company's existence when time is precious.
Finstock's USPs solve this problem, at an annualised interest rate in the teens instead of 40%+, as follows:
1. We move quickly - from first call to drawdown can be as little as 2-4 weeks;
2. You will deal with principals (Oliver Jenkinson and Edo Salvesen) who are experienced investors with backgrounds in law and finance. This means they do not waste management time with unnecessary due diligence; and
3. Our documentation is standardised and reasonable, cutting down on legal fees. We have found that being reasonable and practical results in more and better deal flow as our borrowers recommend us to their peers.
Case Studies
When we refer to venture debt, we are really thinking about a full suite of bespoke routes to finance - some short term and some medium term of up to 2 years. The below three examples are deals we have completed recently which all differ in form but have the same fundamental principles.
A. Parcel delivery aggregator share buyback - Finstock provided a £1.5m loan to a business with a 2 year term with a significant portion of the principal repaid by future tax credits (c.£500k each year) with a bullet payment at conclusion. Interest was paid monthly and there were no warrants included in the loan which was the borrower's preference.
B. Healthtech acquisition finance - Finstock Capital provided a loan of £500k for the company to purchase covid testing equipment with repayments based on operating performance against the asset. The loan was only for 3 months with no warrants included and was an alternative to asset finance for a business which did not have access to that type of capital in the timeframes available.
C. Pension equity bridge - Finstock deployed debt finance into a pensions technology business which was in the process of completing a £100m Series D equity round. The business was looking for a bridging loan for general working capital purposes and to reduce the pressure of completing the Series D on a short timeframe. The term of the loan was 3 months and from first introduction to drawdown was less than one month.
D. Hardware manufacture - Finstock provided a £540k loan for a reverse SPAC takeover in the US, supported by the company's UK future tax credits and the incumbent shareholders. Finstock was repaid by the transaction.
E. Brand management platform - we provided a £1.5m loan against the company's ongoing ARR to bridge it to its next fundraise. The key strategic shareholders wanted the business to continue its current growth projectile before further investors joined.