I had the privilege of speaking at the SLF 2023 Europe conference on November 16th, where I shared insights during the session on "Incubating Leaders: Supporting Early-Stage Growth Specialist Lenders and Identifying the Winners." In the context of early-stage investments, private equity firms specializing in venture debt take a different approach than publicly traded companies when it comes to Return on Equity (ROE).
Instead, their focus shifts towards alternative performance metrics such as Internal Rate of Return (IRR), Multiples on Invested Capital (MOIC), and Year-over-Year growth rate (YoY growth rate). Drawing from my experience in venture debt transactions throughout 2023, I've observed some key trends.
Even in cases of negative EBITDA, the parameters indicate an average unlevered net IRR of 15%, a minimum expected MOIC of 1.5%, YoY growth rates surpassing 30%, and an average interest rate of 12% structured as X + ECB Base Rate with set floors and caps.
Return expectations are significantly influenced by the stage of growth, industry dynamics, and specific circumstances of each lending transaction. Risk mitigation often involves strategic negotiation, including the inclusion of a warrant percentage on the loan and a security package securing first-ranking rights over all business assets. This can encompass a specific pledge of intellectual property rights and deposit account control arrangements.
In the decision-making process, private equity firms meticulously evaluate these factors before committing to investments in early-stage growth companies. It's crucial to understand these dynamics in order to foster successful partnerships between investors and entrepreneurs. #VentureDebt #EarlyStageInvestments #SLF2023Europe #venturefunding #venturelab #vc #earlystageinvesting #earlystage #specialtylendingfinance
PT: Nosso objetivo é oferecer um mercado de crédito sustentável e acessível no Brasil. Isso se tornou possível graças à confiança dos nossos investidores no nosso modelo de negócios e na nossa abordagem de investimento de longo prazo. Nossa parceria com a VEF tem sido marcada por crescimento, resiliência e uma visão compartilhada de futuro, buscando levar educação financeira e crédito saudável para a população. Além de nos fornecer o capital necessário para prosperar, essa parceria nos conectou a uma rede robusta de investidores comprometidos com o crescimento sustentável.