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From Startup to Success: How Venture Debt Can Help Your Business Grow

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1 year ago

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A new kind of funding is on the upswing for startups — venture debt. According to the US Chamber of Commerce, now that venture capital is drying up, “companies of all sizes look to raise more expansion capital via this alternative form of financing.”

As success stories proliferate of entrepreneurs using this funding solution in their early stages, interest in it naturally increases. Yet, venture debt isn’t the right choice for every business.

“Venture debt can open up exciting opportunities, but the decision to take on these loans is complex,” says Jay Jung, founder and managing partner of Embarc Advisors, a corporate finance advisory firm. “Problems can crop up when startups take on debt, so it’s important to weigh all aspects of this approach carefully.” 

Venture debt explained

Venture debt is similar to other types of loans in that a business founder borrows money from the lender (usually an institutional bank, private investor, or fund that specializes in venture debt) and pays it back with interest over time. Companies that have already raised venture capital but are looking for more money to fuel their growth in-between equity rounds i.e., runway extension, typically use it.

“Venture debt provides funds with a short payback period — usually between 18 months and three years,” Jung says. “Lenders work with companies based on what makes sense for them at any given point in time.”

Venture debt helps businesses bridge funding gaps. “Startups are expensive,” Jung explains. “In their early days, most businesses need to spend time building their products or services while figuring out their go-to-market motion, so they usually don’t have a lot of revenue coming in. At the same time, they still need to pay the bills: employee salaries, rent on space, and other overhead.”

Indeed, as one recent study has discovered, “47% of startup failures in 2022 were due to a lack of financing.” For this reason, successfully securing venture debt can mean the difference between a company’s success and failure.

Venture debt also offers startups the ability to grow their business. “It can be a great option for any business looking to expand its operations, hire more employees and make strategic investments in technology or marketing,” Jung says.

Traditional versus venture debt

“Venture debt differs from traditional loans in a number of critical ways,” Jung says. “Traditional lenders look at a business’s past performance when determining whether or not to approve a loan. But for many startups, there isn’t a track record of past revenue. Plenty of new businesses operate in the red for years.”

For this reason alone, a traditional loan may be out of the question for some businesses.

“With venture debt, business owners can leverage the startup’s profitable future,” Jung explains. “While a traditional bank usually makes founders guarantee repayment by staking their personal property as collateral, founders can give venture-debt investors the right to purchase shares in the future, which is called a ‘warrant.’ In this way, they can use equity stakes to entice investors and other possible lenders.”

According to Jung, venture debt attracts investors because these loans tend to have higher interest rates than traditional loans. “In my experience, interest rates for venture-debt loans usually fall between 9 and 20 percent,” he says. 

Options for venture debt

Startups have three options when it comes to venture debt. The first of these is term loans. “These operate much like traditional loans,” Jung says. “The lender loans the startup funds that must be repaid with interest after a certain period.”

Another option is revenue-based financing, which is paid back through a percentage of future revenue. “These loans can either be short- or long-term,” Jung says. “The important thing is that these startups need to have an established track record of generating revenue.”

The third option is factoring. “With factoring, the lender buys your accounts receivables for less than their face value,” Jung explains. “This gives the startup immediate funds, while the investor reaps the difference between their purchase price and the full amount of the bill.”

However, Jung urges caution with this method. “I’ve seen businesses get mired in situations in which they are never able to finish loans based on factoring,” he says. “They fall into a vicious cycle of relying on the factoring company and never actually get ahead, so the true cost of this approach can be a lot higher than it might first appear.”

Maximizing your success

The benefits of venture debt are numerous. Not only can these loans help you get your startup off the ground, but they can also give you the funds needed to grow as a company and expand into new markets. In the current environment where valuations have declined, extending runway through the use of venture debt may allow a company to grow back into its valuation and avoid a down-round. Still, employing this kind of funding successfully requires care.

“If you are interested in pursuing venture debt for your business, then do your due diligence,” Jung advises. “In particular, success will depend on accurately assessing your business’s needs, choosing the exact right financing option, developing a solid plan for repayment, and following it ruthlessly.”

While these steps may seem daunting, entrepreneurs who appreciate their difficulty may well be on the right track. This is one domain in which overconfidence could prove disastrous, but the good news is that — according to Jung — there’s a way to mitigate this risk.

“If you don’t have a lot of experience with corporate finance in general and venture debt in particular, then consider getting advice from a specialist,” Jung says. “With the help of an experienced advisor, you can be confident in choosing the right option and moving your company forward with the maximum chances of success. It’s important to remember that obtaining financing is only the beginning. Managing the finance post-funding is just as important.”

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Rosario is from New York and has worked with leading companies like Microsoft as a copy-writer in the past. Now he spends his time writing for readers of BigtimeDaily.com

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Business

Interview with Jason Ho, CEO of Teklium: A Vision for the Future of Technology

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4 days ago

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October 16, 2024

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Photo courtesy of Teklium 

By Mj Toledo

There is a wealth of experience behind Teklium, and it is embodied in its chief executive officer (CEO), Jason Ho. His educational foundation was laid at National Chiao Tung University and Pennsylvania State University, where he developed his skills in electrical engineering. With over 400 patents to his name, he has played a key role in advancing semiconductor technologies and artificial intelligence (AI).

From leading custom chip design for the F35 Fighter Jet to innovating at Teklium, Ho’s work has been adopted by major corporations worldwide. In this interview, he shares his vision for the future of technology and how Teklium’s developments fit into this broader landscape.

Q: Hi, Jason. For those who may not be familiar with Teklium, could you tell us more about your company?

Jason Ho: Certainly. Teklium is a technology company focused on improving AI and semiconductor technologies. Our mission is to create self improving AI systems and hardware that can tackle various technological challenges and shape the future of multiple industries.

Q: You hold over 400 international patents, with one of your most notable innovations being hydrogen battery technology. What inspired you to promote this sustainable transportation solution?

Jason Ho: I’ve always been deeply interested in finding sustainable energy solutions, especially in transportation. Traditional lithiumion batteries have clear limitations, both in terms of performance and their environmental impact due to resource mining. Hydrogen batteries present a promising alternative, offering both environmental benefits and faster refueling times, which could make electric vehicles more practical and appealing.

Q: What drove you to focus on hydrogen battery technology specifically?

Jason Ho: My collaboration with Mark Bayliss, President of Visual Link, played a significant role. Mark introduced the concept of a closed loop hydrogen system, and our joint efforts resulted in the development of a hydrogen battery technology that we believe can provide a clean and safer alternative to lithiumion batteries. This inspired me to continue refining the technology, working with Visual Link to bring it to market.

Q: How do you see your company’s hydrogen battery technology impacting the electric vehicle industry in the next decade?

Jason Ho: I’ve thought about this a lot. Our hydrogen battery technology has the potential to revolutionize the electric vehicle industry by offering a more efficient and sustainable energy source. The ability to refuel quickly, combined with the technology’s adaptability to a wide range of temperatures, could make electric vehicles far more practical and attractive to consumers in the long term.

Q: Can you explain the significance and potential impact of Teklium’s closed loop hydrogen energy system on global energy consumption?

Jason Ho: The closed loop hydrogen energy system is groundbreaking because it enables onsite hydrogen generation through water electrolysis, eliminating the need for external supply chains. This drastically lowers energy consumption and minimizes environmental impact by recycling water in a continuous loop. The system offers an environmentally friendly solution for industries beyond transportation, including energy storage and telecommunications.

Q: What challenges do you foresee in scaling up hydrogen battery production, and how does Teklium plan to address them?

Jason Ho: Scaling up hydrogen battery production comes with significant challenges, including the development of necessary infrastructure, reducing production costs, and ensuring safety standards. At Teklium, we plan to address these obstacles by partnering with industry leaders to build the required infrastructure and by investing in research to lower costs. We’re also committed to implementing rigorous safety protocols to ensure the technology performs reliably.

Q: How does Teklium’s strategy for AI infrastructure differ from traditional approaches?

Jason Ho: At Teklium, we’re taking a different approach by exploring ways to develop advanced materials and technologies that could improve the performance and efficiency of AI infrastructure. We’re focused on moving beyond traditional silicon based systems and envision a future where we can create three dimensional chip structures that significantly reduce data movement and energy consumption. By integrating memory and processing capabilities, we believe we can revolutionize AI workloads.

Q: Teklium has ambitious plans for extending Moore’s Law. Can you elaborate on how these plans could transform the semiconductor industry?

Jason Ho: Siliconbased chips are nearing their physical limits, so we’re exploring technologies that could allow us to scale transistor density both vertically and horizontally. By adopting these new approaches, we aim to significantly increase chip performance and, in doing so, challenge the traditional expectations of Moore’s Law. We also envision a future where chips are reusable and can be reprogrammed over decades, which could reshape the semiconductor industry’s business model in terms of sustainability and efficiency.

Q: What environmental benefits could Teklium’s technologies bring, particularly in reducing carbon emissions and resource consumption?

Jason Ho: Our innovations could have a profound impact on the environment. We’re committed to developing technologies that reduce resource consumption and minimize waste. By creating more efficient manufacturing processes and extending the lifespan of chips, we hope to significantly reduce electronic waste. Our work on AI infrastructure could also cut energy consumption in data centers by as much as 60%, which would translate into substantial reductions in carbon emissions. And, of course, our hydrogen battery technology offers a clean energy storage solution that could accelerate the adoption of renewable energy sources.

Q: Aside from electric vehicles, what are some other exciting applications of Teklium’s hydrogen battery technology?

Jason Ho: While electric vehicles are an obvious application, there are so many more exciting possibilities. Our hydrogen batteries could serve as large scale energy storage solutions, balancing grid loads and supporting renewable energy sources like wind and solar power. They could also power remote cell towers and data centers in areas where traditional power sources are unreliable. In aerospace, these batteries could enable long range drones and even electric aircraft. The potential applications in disaster relief and military operations, where portable and reliable energy is critical, are also very exciting.

Q: How does your collaboration with companies like Nantero and Visual Link advance Teklium’s technological developments?

Jason Ho: Our collaboration with Nantero is allowing us to explore advanced memory architectures, while our partnership with Visual Link offers crucial insights into practical applications and market needs. Visual Link also helps us navigate regulatory challenges, ensuring our innovations are commercially viable and compliant with industry standards.

Q: Teklium is involved in the concept of AI City in partnership with West Virginia Data Center Group. Can you tell us more about the vision for this project?

Jason Ho: AI City is an ambitious concept that we’re working on with the West Virginia Data Center Group to turn into reality. The idea is to create an intelligent infrastructure that incorporates cutting edge technologies in AI and data centers, optimizing everything from energy usage to communication networks. We envision a city that can learn and adapt to the needs of its residents, reducing inefficiencies and improving quality of life. It’s still in the planning stages, but we’re confident it can become a reality in the near future.

Q: What are your long term goals for Teklium, and how do you see your inventions influencing future generations?

Jason Ho: My long term vision for Teklium is to become a leader in sustainable technology solutions. We aim to continue pushing the boundaries of AI, semiconductor technology, and energy solutions. I want our innovations to inspire future generations to tackle global challenges like climate change and resource scarcity. Ultimately, I hope Teklium’s work contributes to a more connected and sustainable world.

While Teklium’s advancements may take time to fully realize, they open up exciting possibilities for addressing critical challenges like energy consumption and sustainability. Under Jason Ho’s leadership, Teklium is poised to make a significant impact on the future of technology and the environment.

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