SAN JOSE, CA–(Marketwired – November 28, 2014) – “Helping Others Succeed,” a business consulting practice operated by Gary L. Fischer, announced today that Mr. Fischer helped raise venture debt for a startup company in Silicon Valley. Mr. Fischer was engaged as the company’s part time CFO and the founder and CEO asked that he take the lead in securing a working capital loan from the venture debt community.
Venture debt is not available for early stage startups but is a financing tool used by mid stage and late stage startups. Typically the startup must have completed the initial product development and have beta site customers or actual revenue from shipping product. “The timing on a venture debt deal is important,” explained Fischer, “and most often a funded loan deal follows in the footsteps of a recent investment by the venture capital backers. This enables the lender to rely, in part, on the due diligence performed by the VCs. Further, the loan is most often viewed by all parties as supplemental, adding to the working capital recently raised from VCs. A company almost out of money will not likely secure a venture debt loan.”
“There is a big difference in the funding instrument,” explained Fischer. “VCs usually are buying Preferred Stock whereas the venture debt folks are lending, not buying. As such, in the event of any type of ‘liquidity event’ such as an acquisition, the venture debt money is paid back first. The VCs receive no money until the lender has been paid in full, even if the VCs have invested under a bridge loan structure which is debt and not equity. If the acquisition is in the money, the lender is paid and the VCs also receive money. If the acquisition is a distressed acquisition, the lender receives the first dollar paid, ahead of all others owed money since their loan is secured by all the assets of the company. Almost always the sophisticated venture debt lender files a UCC1 registering their senior position to claim the assets. They will even be paid ahead of a creditor in Accounts Payable because the vendor in AP is not a secured lender.”
“The strategy for a venture debt lender is to limit their down side by relying on a recent investment from the VCs and by requiring that they be paid first in any acquisition,” Fischer said. “It is not uncommon for a company that has raised $50M to $150M to be acquired at a distressed value of, for example, $20M. But as long as the lender has loaned less than the distressed value, they have limited their risk. Their upside, however, is not limited since they always require warrants that give them rights to buy stock in the future at a designated price, usually the price in the most recent round from the VCs.”
It is Fischer’s view that to successfully secure venture debt the company must understand the subtleties in a venture debt loan structure and strategy. “Some lenders like to suggest that they are related to the VCs, but in fact they are barely distant cousins. Nevertheless they serve a real purpose as adjuncts to the VC community. Venture debt is complicated, expensive and locks up a company in some very uncomfortable ways. Nevertheless both the VCs and the startups welcome their involvement.”
In this deal Fischer found that the lending community was very active and very competitive. He was able to secure six proposals. Of these, several were immediately interesting and several were far off the mark. However, one of the worst proposals actually came out the winner. “They had generally gone silent,” said Fischer, “and so I called the manager and let him know that I was in the final stage of presenting to the board of directors and was not going to include them on the list of possibles. He asked if he could submit a new proposal and he responded quickly. In the end they were awarded the deal. I could have ignored them and not re-contacted them. But I had a sense that they were able to do more. It was just an intuitive sense but turned out to be accurate and this is one way I helped the company. And once again explains why I named my consulting practice ‘helping others succeed.'”
Gary L. Fischer, based in Silicon Valley, has worked extensively in Asia and Europe. He has taken two companies public, led three public secondary offerings and has been involved in numerous private financings of equity and debt. He has served on two public company board of directors as Chairman of the Audit Committee as well as being on a public company board as an operating executive (President & COO). He has solid experience in M&A, including the sale in 2009 of eRide where he began serving as CFO in 2005. He continued as a part time CFO with eRide after the acquisition and began his consulting business. Helping Others Succeed provides CFO consulting services, organizational development, executive coaching, M&A hands-on due diligence, M&A closings and other business and financial projects. He receives high marks for his achievements but prides himself at being “hands on” (he still changes the oil in his car!). Prior to eRide Mr. Fischer joined ISSI in 1993, took it public in 1995 and subsequently was appointed President and COO of the company. Mr. Fischer’s complete bio is listed on LinkedIn.
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Gary L. Fischer