Posted on

Deliveroo, Graphcore and other big UK startups say they’re being cut out of COVID-19 lending relief

The UK government, like a number of other countries around the world such as the US, has stepped up its pace in providing relief in the form of loans for businesses being impacted by the coronavirus health crisis and the related shutdown that we’ve seen across the economy and life as we knew it. But startups in the UK are increasingly getting worried that they are being left behind.
An open letter to the Chancellor published today and signed by the UK’s biggest “scale-ups” — later-stage, highly valued, but still venture-backed (and often loss-making) startups such as Deliveroo, Benevolent …

Read More

Posted on

The don’ts of debt for fast-growing startups

If you take on debt, understand the implications and consider the following five rules

I work every day with company founders who are grappling with the challenges of driving business growth while keeping their finances on an even keel. One topic we often discuss is how to take advantage of debt to drive business growth — without it turning into a problem.

In my experience, debt can serve as a valuable piece of a company’s capital structure. The key is to use debt for the right purposes and to understand the implications of doing so. For example, short-term loans (one to two-year terms) are useful for financing receivables and inventory to help manage cash flow. These working capital facilities have attractive interest rates (often in the 5% range) and are well understood by the lending community.

By contrast, mezzanine loans (usually three to five-year terms) are better suited to provide the flexibility and runway needed to prove out certain initiatives prior to securing an equity investment or a liquidity event. These loans tend to have limited covenants, are not secured by specific working capital assets and are junior to the working capital loans. Given their higher-risk profile, they are more expensive than short-term loans, with lenders typically targeting a return of 15% to 20%, split between a current pay interest rate of 10%+ and expected stock appreciation from the receipt of warrant coverage.

Regardless of the type of debt a company takes on, there are certain principles to consider to keep the debt from threatening the success of the business. Should you decide to take on debt, understand the implications and consider the following five rules:

Source: TechCrunch