Venture Debt is an alternative form of financing that is becoming increasingly popular for high-tech startups. Unlike traditional bank loans, which require solid collateral and profitability, venture debt is available to fast-growing startups that already have venture capital investors. This instrument allows a company to raise capital without significant dilution of the founders' equity. However, venture debt comes with specific legal risks and obligations, such as warrants, financial covenants, and security interests over IP. Qualified legal advice is essential to correctly assess whether it is worth taking on this burden and how to negotiate the best terms with the lender.
What Does Venture Debt Advisory Service Cover?
Specialists on Legal.ge help you structure and execute venture debt deals. The service includes:
- Loan Agreement Analysis: Legal assessment of the interest rate, repayment schedule, and prepayment conditions.
- Warrant Negotiation: A warrant gives the lender the right to purchase company shares at a fixed price. A lawyer helps minimize the coverage and terms of the warrant.
- Covenant Negotiation: Discussing financial and non-financial restrictions (e.g., minimum cash balance) so they do not hinder the company's operational activities.
- Security Agreements: The lender's requirement to have a lien on company assets (including IP). The lawyer ensures this does not impede future investments.
- Intercreditor Agreement Preparation: If the company already has other creditors or investors, prioritizing their rights is necessary.
Real-World Scenarios When You Need This Service
Venture debt is useful in the following situations:
- Extending Runway: When you need extra time before the next Equity Round to achieve a better Valuation and reduce dilution.
- Purchasing Expensive Equipment: If you are a hardware startup, venture debt is ideal for financing capital expenditures (Capex).
- Financing Acquisitions: When you want to buy a competitor company or technology without issuing shares.
- Avoiding a Down-Round: If the market situation is difficult and investors offer a low valuation, debt can help you survive until the market recovers.
Georgian Legal Framework and Regulations
Venture debt in Georgia is regulated by the Civil Code of Georgia (sections on loan and credit). Security measures (pledges) are regulated by the Civil Code and the Law on Enforcement Proceedings. Warrants and share options are regulated by the Law of Georgia on Entrepreneurs. Since venture debt often comes from international institutions, the agreement may be based on foreign (e.g., English) law, requiring a Legal Opinion from a Georgian lawyer regarding its enforceability in Georgia. A professional lawyer ensures these complex cross-border aspects are resolved.
Service Process
The venture debt advisory process on Legal.ge includes:
- Feasibility Assessment: The lawyer analyzes how ready the company is for venture debt and what risks it entails.
- Term Sheet Review: Analysis of the lender's offer and negotiation of key terms (interest rate, warrants).
- Due Diligence Support: Preparing legal documentation for the lender.
- Final Execution: Signing and registering loan and security agreements.
Why Choose Legal.ge?
Venture debt is a complex instrument requiring specialized knowledge. On the Legal.ge platform, you will find lawyers experienced in working with international financial institutions and venture funds. With our help, you can raise additional capital with minimal risk and retain maximum equity in your company.
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