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

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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.”

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

VPNRanks Report Uncovers User Discontent with Majority of VPN Services

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A groundbreaking report by VPNRanks reveals significant user dissatisfaction with the majority of VPN services, showing that 89% of VPNs globally fail to meet user satisfaction standards. This revelation comes at a critical time when digital security is paramount, and the demand for reliable VPN services continues to rise.

The Importance of User Satisfaction in the VPN industry

According to industry statistics from Global Market Insights, the global VPN market size was valued at USD 45 billion in 2022 and is estimated to grow at a compound annual growth rate (CAGR) of around 20% from 2023 to 2032. Driven by the growing instances of cybercrimes and data thefts, coupled with the increasing proliferation of wireless devices and digital infrastructures across industries, user satisfaction remains a critical challenge for many providers. High user satisfaction is essential for customer retention, brand reputation, and long-term success in the competitive VPN market.

“User satisfaction is the cornerstone of success in the VPN industry. In a market flooded with options, it’s the real user experiences that set the leading providers apart. VPNScore helps users navigate this complex landscape by highlighting services that excel in meeting user expectations,” said Muhammad Saleem Ahrar, COO of webAffinity, the team behind VPNRanks.

VPNRanks is a leading VPN review platform that leverages sentiment analysis to provide comprehensive and unbiased reviews of VPN services. Its VPNScore is based on an AI-driven analysis of publicly available user reviews. The platform aims to simplify the process of identifying the best VPN provider tailored to each user’s unique needs.

VPNRanks Untangles Complex Findings on Key Features

VPNRanks evaluated four key features — ease of use, ease of setup, ability to meet user requirements, and quality of support — to identify the VPN companies that excel at customer satisfaction. To determine a final rank for each metric, VPNRanks combined a popularity score, which contributed 20 percent of the total, with a satisfaction score, which contributed 80 percent.

The study sifted through reviews on 93 paid VPN companies to determine the top providers. The VPNRanks report, issued in June 2024, provides rankings for each key feature and overall customer satisfaction. ExpressVPN achieved the top VPNScore — 6.29 out of 10 — for overall satisfaction globally. The next four top companies in that category, listed in descending order, are PureVPN, NordVPN, PrivateVPN, and Surfshark.

By assessing a variety of categories, the VPNRanks study reveals the challenges users face when trying to identify the best option to meet their needs. For example, NordVPN received a nearly perfect popularity score of 9.46 out of 10 but only a 4.7 satisfaction score. PrivateVPN received a satisfaction score of 6.69 out of 10, which rivaled ExpressVPN’s score in that category, but received a popularity score of only 1.23 out of 10.

The global rankings for ease of use illustrate how challenging identifying a quality provider can be. VeePN received a very high satisfaction score of 7.18 out of 10 while receiving a popularity score of less than 1 out of 10. The findings reveal a gap between user experience and market penetration that can effectively keep the best option hidden from the consumer.

The VPNRanks report gives users insight into satisfaction and popularity while providing a balanced assessment via its VPNScore. “Users should choose based on their priorities, whether it’s user satisfaction, market presence, or a balanced option,” the report states.

VPNRanks Shows Providers How to Become More Competitive

In addition to serving as a guide for consumers, VPNRanks also maps out a pathway for VPN providers seeking greater market share. The VPN providers that consistently appear in the top spots on the VPNRanks charts are those that have achieved a balance between popularity and user satisfaction. Those who neglect one or the other cannot keep pace with market leaders.

The report explains that those with high satisfaction scores but low popularity “might be well-loved by their users but need to increase their market visibility to compete more effectively.” Achieving overall success in the VPN market requires balancing user satisfaction with market presence, it advises.

Conclusion

As the need for VPN services continues to grow, businesses can expect to see more providers enter the market, making the task of identifying the best option more difficult. The insights VPNRanks provides stand as a timely beacon, guiding users to providers who can satisfy their needs and support their operations.

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