“Data-Driven Thinking" is written by members of the media community and contains fresh ideas on the digital revolution in media.
Today’s column is written by Jerry Neumann, a venture capitalist with Neu Venture Capital.
We're used to using equity for startup financing – or things that are actually equity even though they're not called that, like convertible debt. Who would lend money to a startup in exchange for nothing but interest? An interest rate high enough to compensate for startup risk would mean interest payments so big they would drive the startup under.
But lenders do lend to startups. They have figured out they can make money and manage risk by taking forms of payment other than interest and by lending against specific collateral. This is great for startups because these loans are far less dear than venture capital.
The three main types of loans to startups are venture debt, receivables financing and equipment financing. I'm only going to talk about receivables financing because in many media buying models, working capital can be a significant use of cash, so financing receivables can greatly ease the pains of growth and seasonal spikes in demand.
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