When is the best time for VC-backed businesses to consider private debt?


It is a widely held belief to always raise funds for your business when you do not need them. Here at Fuse Capital, we strongly agree with this statement. In this article, we will explain why.


Raising money when you don't need to, often called 'overfunding', allows for growth, new offerings, greater flexibility and ample funds for those unforeseen challenges that are sure to come up. 


Ideally, you want to avoid being in a position where you "need" debt. You want to be in a place where you can run your business comfortably, preferably with a minimum of a 12-month runway. You can then look ahead and take proactive steps to plan for the future. 


If you have a sufficient cash runway, you will have access to more lending options which can mean higher amounts, better terms and cheaper debt. Private Debt funds want to see that you are keeping the future at the forefront of your business strategy while keeping day-to-day operations in order.  


Whether you’re a CFO, non-executive, shareholder, investor or advisor of a VC-backed business, the chances are that you’re focused on the next move that boosts the growth of your company. But you will also be constantly assessing the ‘What-if’ scenarios.


By moving early to secure debt funding, you can be ahead of many of the common ‘What if’ scenarios.  These are typically slower growth, costs rising faster than anticipated, execution risk. Securing debt will ensure that you have the liquidity to mitigate these issues ahead of your next funding round.


Debt is also an effective way of bridging to your next funding round to reduce dilution and increase valuations.



A word from Hayden Smith, Debt Advisory Partner, Fuse Capital:

"We are increasingly seeing our clients pro-actively raise debt; not only is this prudent in terms of providing a strong liquidity buffer in the near term it also drives optionality and an ability to accelerate the delivery of their forecast/growth ambitions. When raising debt early clients can demand better terms from their lenders, and potentially benefit from an increased valuation at their next equity round."