Frequently Asked Questions
Our borrowers range from pre-revenue (tax credit financing only) to $20+ million revenue companies. Our sweet spot is companies with $1 to $10 million in ARR.
Our credit facilities are up to $15 million.
Espresso provides venture debt financing to early and growth stage technology companies.
Venture debt is the “mezzanine” capital layer sitting between bank debt and equity financing. Fast growing companies that do not have positive cash flows or significant assets to use as collateral may not be able to secure any, or enough, bank financing to meet their capital needs. Venture debt offers these companies an alternative or complementary form of debt financing to maximize benefits of leverage.
When companies think of venture debt financing it is often in the context of needing a bridge or funding extension. Obviously, this is a very good use for venture debt, but its impact can be much more profound if incorporated into long-term funding strategy. A long-term venture debt partner can be a very valuable ally in helping to ensure the business has access to quick and timely funding to take advantage of growth opportunities as they arise. For companies growing very rapidly, deferring an equity round for 12 or 18 months can have a huge wealth impact for the founders. When equity markets slow or shut down, venture debt can help companies continue to make hay while their competitors are in hold-mode. And for companies going through growing pains, venture debt can help provide the extra runway to get things back on track.
Venture debt is an attractive and underserved niche characterized by low leverage levels, typically less than 20% loan to enterprise value.
Additionally, many of Espresso’s loans are sponsor backed, providing additional security. Secondly, SaaS companies have higher margins, faster growth rates and stickier customers. SaaS is also growing very rapidly, providing a greater buffer against revenue compression in market downturns. Finally, SaaS companies are relatively easy to sell or liquidate in order to force a loan recovery.
Venture debt allows the founders of the company to retain both economic and strategic control over their baby longer than if they were to fund with equity alone. Using the most recent data from Pitchbook, we estimate that if a company funded each of its seed, A and B rounds using one-third debt and two-thirds equity, the insiders (founders, family and friends) would retain 53% ownership in the company versus 40% if the funding was comprised of equity alone. While the non-dilutive impact of venture debt can have profound impact in the ultimate exit value for founders and insiders, the value of maintaining voting control as long as possible is ultimately priceless.
Espresso Fund V LP is our master fund. Investors seeking to invest via registered plans can invest in Espresso Income Trust which is a limited partner Espresso Fund V LP.
For one, it’s efficient. There is a lot less paperwork than equity financing, and founders usually get more money faster. At Espresso, we can move to funding in as little at 10 days. In addition, you don’t give up board seats, provide personal guarantees, or sign a long list of covenants. Another benefit specific to Espresso is that we are funded by successful founders and business executives who share Espresso’s mission, and who actively make themselves available to provide advice, mentorship, and connections.
Espresso has been funding technology companies since 2009. During that time, we have funded more than 260 companies across over 825 loans with exceptionally low default and loan loss rates. Espresso has consistently been among the most active venture debt funders in Canada, as evidenced by its ranking by the CVCA as the top venture debt lender in 2017.
Since inception in 2009, Espresso has delivered investors annual returns in excess of 9% after fees (assuming class F fee structure).
We target 8%+ annual net income after fees and have exceeded this target every year since inception in 2009.
Success in venture debt requires a hybrid of equity and debt underwriting skills, and we’re very fortunate to have assembled what we think is the premier venture debt team in North America.
In addition to investing in a first class team, we’ve also build a proprietary software platform, including an AI-powered credit scoring model to help to our team make highly accurate data driven credit decisions.
Investors who redeem prior to the first anniversary will be charged a 5% early redemption penalty. Investors can redeem monthly with 30 days notice.
The Trust and LP offer closings on the last day of each month.
Espresso finances bootstrapped as well as sponsored (angel or VC-backed) companies alike. Our current portfolio is comprised of 25% bootstrapped companies and 75% venture capital or other investor backed companies.
Espresso loans generally take the form of a line of credit, though we can also provide amortizing and non-amortizing term loans.
Espresso’s facilities are generally repaid via the proceeds of an equity or bank financing.