Scale-Up Programmes

Barclays: Venture Debt

The development of the venture debt asset class is encouraging for scaleups and Barclays is offering an exemplar model, increasing the variety and depth of suitable non-equity finance in the marketplace.

Venture debt funds have commonly been available in the United States but are less available to UK businesses. Venture debt can be used to finance revenue growth, and as a bridge between equity rounds and pre-IPO financing. It can leverage equity capital in order to increase valuations between equity rounds, reduce dilution and enhance overall investor return.

Research by Oxford Said Business School noted that companies with venture debt raise larger equity rounds and that “venture debt is used to augment, not replace venture capital.” Early-stage debt funding, together with equity investment, can provide scaleups with more efficient capital structures.

Barclays is an exemplar of this: it has a £200m venture debt fund available for fast-growth companies that have increased revenue by more than 20% year-on-year and have also received external investment through post-seed funding. The Innovation Finance loans of up to £5m provide early-stage companies with an alternative method of funding than raising equity finance.

Companies that have raised venture capital are proactively sought and debt financing is offered alongside to complement this. The VC capital might be used to finance product development whilst venture debt can be useful for cash flow.

The pricing of venture debt will be dependent on various risk factors. A warrant, giving the lender the right to purchase shares or stock at a stated price at a certain point in time, will also be taken. The facilities are usually interest-only and are offered over 24 to 36 months.

The Barclays venture debt offering is available to companies registered in the UK. There is no specific sector focus but the majority of companies suited to the proposition are fast-growth technology companies with a turnover of over a million pounds and 20% year-on-year growth, and VC backers with a sector track record. Scaleup companies who use venture debt also benefit from networking events and from the provision of specially trained Relationship Managers.

https://www.barclays.co.uk/business-banking/sectors/entrepreneurs/

If you know any national or local scaleup programmes that you want to recommend as a potential case study for the Institute to consider please do get in touch: info@scaleupinstitute.org.uk

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