Continued from page 1
6.To bridge-finance equity transactions. Occasionally, start-ups are able to obtain short-term loans to bridge upcoming equity transactions. These loans are usually well secured by all-asset liens against these companies and are generally available for short time frames. Most venture lenders who provide this type of financing require equity kickers in
form of warrants to purchase stock in
start-ups or stock issued directly to them by
start-ups.
7.To hedge against rapidly depreciating equipment. Venture leases can be structured as fair-market-value leases. These leases usually allow
lessees to renew
leases at fair-market-value renewal rates, to purchase
equipment at fair-market-value purchase prices, or to return
equipment to
lessors at
end of
leases. The return option allows
start-ups to conveniently dispose of obsolete or unneeded equipment.
8.To replace venture capital. Start-ups are using loans in
form of subordinate debt as a substitute for additional equity rounds. These loans can be collateralized or unsecured and can be used for many of
same purposes as equity funding – to continue product development, to add key personnel, to expand marketing and to support sales efforts. Venture lenders generally charge a premium rate for these loans and require sizeable equity kickers in
form of warrants or ownership shares in
start-ups. These loans are generally cheaper than equity financing and may amortize faster.
9.To spread equipment cost over
productive life of
equipment. By being able to spread
cost of
equipment over an extended period, start-ups can get productivity out of these assets while they pay. Paying for
assets out of internal cash has just
opposite effect.
10.To quickly build out infrastructure to allow all employees to be more productive sooner. Venture leasing and lending allow start-ups to add computers, phone systems, networking equipment, software and other business essentials quickly. Employees can be more productive sooner and benchmarks can be reached faster.
Using venture leases and loans is a smart choice for savvy entrepreneurs. It allows them to build substantial equity value with minimal dilution. These arrangements usually do not require board representation or loss of management control. Start-ups are able to add needed equipment and finance working capital with lots of flexibility. Additionally, these forms of financing are significantly cheaper than
likely alternative, more venture capital financing. Savvy entrepreneurs have discovered these advantages and are using them to put their firms ahead of
pack.

George Parker is a Director and Executive Vice President of Leasing Technologies International, Inc. (“LTI”). Headquartered in Wilton, CT, LTI is a leasing firm specializing nationally in equipment financing programs for emerging growth and later-stage, venture capital backed companies. More information about LTI is available at: www.ltileasing.com.