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Venture Debt — Alternative for Early Stage Companies?

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Venture Debt — Alternative for Early Stage Companies?

Florian T. Hirsch­mann — Lawyer and Part­ner at Reed Smith LLP, Munich

Silvio McMi­ken — Attor­ney at Law and Counsel/Attorney at Law at Reed Smith LLP, Munich

Individually tailored financing is one of the most important, possibly the decisive factor for the success of a young company. Equity financing, i.e. an investment in the company in return for the issue of new company shares to the investor, is still certainly to be regarded as the classic start-up financing. Another alternative, venture debt, has been available for a short time. What to look out for here is explained below.

First of all, it is important to find an investor who believes in the company, the founders and their idea. In addition, it is crucial to find the right funder or strategist for an investment, as investors differ significantly in terms of medium- and long-term goals, support beyond pure financing, and access to contacts and markets. It is also important that a company is neither over- nor underfunded; only then can a start-up grow at an appropriate pace and sustainably, and in turn become more attractive for future investors or an exit. Last but not least, the founders also have an interest in finding a coherent financing, in particular a balance between their interest as shareholders and their interest as employees or directors of the company. All these considerations often have to be made between door and door in the absence of time and resources, as the founders' focus is primarily on the operational side of the company and the development of its business.

Equity financing, i.e. an investment in the company in return for the issue of new company shares to the investor, is still certainly to be regarded as the classic start-up financing.

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Venture Debt - Alternative for Early Stage Companies?

author_1

Florian T. Hirschmann

author_1_prof

Lawyer and Partner at Reed Smith LLP, Munich

author_2

Silvio McMiken

author_2_prof

Attorney at Law and Counsel/Attorney at Law at Reed Smith LLP, Munich

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