Month: March 2015

The case for venture debt for early stage companies is fairly easy to understand. Company X raises a $5MM Series A round from venture capitalists, providing for approximately a year of cash runway based on a projected cash burn of $400K/month. During this time, the company will scratch and claw to meet as many operating milestones as possible to with hope that the next round of capital is completed at a significantly higher valuation. Time being rarely a friend to a startup, the management team contemplates layering on $2MM in venture debt to increase cash runway by 4-5 months.  The incremental financing is expected to provide the company with the needed breathing room to cushion against inevitable milestones delays and/or will provide the added juice to move the company into hyper growth earlier than originally planned. All the company needs to do is pay a small interest charge and take on a bit more dilution by providing warrants to the lender (typically 10-20x less dilutive than equity). Factor in the current hyper competitive debt landscape where capital is both cheap and abundant (particularly with regard to bank lenders), and you have the perfect product right? Well. Sometimes. Maybe. But maybe not. Last year I mentioned that venture debt at the early stages was probably overused as a default vehicle.  I think that’s even more true today. @Samirkaji @dcurtis @hunterwalk exactly — Jonathan Abrams (@abrams) March 10, 2015 I won’t reiterate my last post, but I do want to emphasize that the seductive nature of easily attainable non-dilutive capital has creates a world where companies are going too far on the risk curve too early. What I’m specifically referring to is the disturbing trend I’m seeing of management teams treating debt analogous to equity.  And many lenders are happy to oblige to this through increasingly more flexible structures and larger commitment sizes. Where I’m most concerned is when I see companies utilizing the additional dollars in the vault by prematurely going into hyper growth mode. It’s not too dissimilar to what we’ve observed within the “unicorn” landscape where some companies have seemingly eschewed financial fundamentals in favor of optimizing for growth of a single top line metric. The truth is that excess capital of any size lowers adversity to risk taking. With just equity, if major milestones are not hit, it’s a bad thing, but often recoverable.  When debt is added to the equation, the results can be catastrophic and non-recoverable.  Fundraising becomes more complex and balancing fiduciary responsibility with the lender can be both difficult and distracting (usually at a time when distractions can be ill-afforded). So is venture debt bad for early stage companies – Of course not, although I’m not in favor of...

Just last week, I wrote about the evolving Micro-VC market.   Following that post, I received notes from several firms that wanted to confirm they were part of the data set (236 firms).  Many weren’t, so I spent a few minutes this weekend adding in the names. The updated count? 250 firms, although I’m confident we’re still missing a few. Boston – 15 SoCal – 17 NY – 33 SF Bay Area – 115 Rest of country/world – 70 A few notes: 1/The fund sizes below represent the size of the current fund the firm is investing from, not AUM of firm. 2/Some of the firms below are still in fundraise mode, so some may graduate to higher fund dollar classes based on future closes. 3/With respect to geography, all Bay Area firms were categorized as San Francisco (versus categorizing them by city).  SoCal firms were categorized as LA (sorry). “Other” references geographies outside of Boston, NY, SF, and LA. I’ll break it out later in more detail, but it’s what I’ve used for tracking purposes. 4/Many firms on the list are multi-geography in nature, so I had to judgement to deem a HQ. 5/The buckets are in $25MM increments; As such, the $0-$25MM range may include a $2MM fund or a $25MM fund. 6/Form D filings were used for some, so it’s likely some managers raised far more or less than what the filing indicated. 7/Not all of the firms listed would consider themselves Micro-VC’s, but it’s my list. I’ll likely update this list at some point with sector/stage focus/average initial check size once I find some time to do so. Finally, if I’ve missed any names or mistaken profiled any firms (I’m sure I’ve done both significantly here), please contact me so I can update. $0-25MM 212 Capital Partners Florida Multi Sector 55 Ventures SF/NY Multi-sector 645 Ventures NY Multi-sector Accelerator Ventures SF Multi-sector ACE & Company Switzerland Muti Sector Advancit Capital Boston Multi-sector AF Square LA Multi-sector Allegro Ventures SF Multi-sector Arcus Ventures Chicago Multi Sector Arnold Capital SF Multi-sector Array Ventures SF Enterprise Base Ventures SF Multi-sector Bassin Ventures SF Mobile Bee Partners SF Multi-sector Belle Capital Mi Multi-sector Bennu SF Multi-sector Blackbird Ventures Australia Multi-sector BOLDstart Ventures NY Enterprise Bolt Boston Hardware BoostVC SF Multi-sector Bootstrap Labs SF Multi-sector Brooklyn Bridge Ventures NY Multi-sector Canyon Creek LA Multi-sector Center Electric SF IoT Coent Venture Partners Singapore Multi-sector Commerce VC SF Commerce Common Angels Boston Multi Sector Core Ventures SF Enterprise DAN fund Tx Multi-sector Darling Ventures SF Multi-Sector Designer Fund SF Multi-sector Detroit Venture Partners MI Multi-sector Divergent Ventures WA Multi-sector Dorm Room Fund NY Multi-sector Double M Partners LA Multi-sector...