Housekeeping - RegTech
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Transcript of Housekeeping - RegTech
Housekeeping• All on mute please
• Q&A via chat function only
• We’ll do our best to get to everyone
• A recording of this event will be available for RTA members
Deborah YoungCEOThe RegTech Association
Venture Credit…What’s that?!
Nigel DewsVenture Partner, OneVentures
Nick GainsleyPrincipal, OneVentures
James McGrathInvestment Manager, OneVentures
VENTURE CREDIT… WHAT’S THAT!?B Y O N E V E N T U R E S
N I G E L D E W S
N I C K G A I N S L E Y
J A M E S M C G R A T H
Please submit your questions for the fireside chatby using the Q&A
function at the bottom of your screen.
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ONEVENTURESOVERVIEW
Australia’s leading technology & healthcare VC
16 employees across 3 cities
Australian VC backing tech and healthcare
Over $400M in FUM
Founded by founders
22 active portfolio companies
Backed by 100+ HNWs representing $20B in wealth
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A global growth investment focus drives fund creation2010 2014 2016 2019 ONGOING
September 2011 - 2019
Fund I to Fund III PortfolioCompanies
$46M
10 co-investments
CO-INVESTMENT FUNDS
INNOVATION FUND (FUND I)
March 2010
Early stage tech/healthcare
$40M
9 Investments
3 Exits (inc. US$197M deal)
INNOVATION &GROWTH FUND II
September 2014
Later stage tech/healthcare
$75M
7 Investments
April 2019
Venture Debt Growth Companies
$60M+
5 investments (target 30 – 40)
CREDIT FUND IVHEALTHCAREFUND III
December 2016
Clinical healthcare
$170M
5 Investments (target 10 – 12)
Investing in Australian technology & healthcare companies since 2011
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OneVentures’ portfolio includes companies with truly disruptive and innovative products tackling multi-$Billion problems from healthcare though to the cloud and connected world technologies: wearable for dementia patient care, HR management in the cloud, e- learning and virtual communications.
NON-EXECUTIVE BOARD OF DIRECTORSPARTNERS
Dr Paul KellyManaging Partner, Executive Director
Dr Michelle DeakerManaging Partner, Executive Director
Grant ChamberlainPartner
Anne-Marie BirkillManaging Partner,Executive Director
Walter LewinChairman
Simon MooreFormer Director / Advisory
Connie Mckeage Director
Roger Massy-GreeneDirector
Peter Gammell Director
Sanice Embleton Marketing & Operations
Bernard ChinFinance Manager
FINANCE & OPERATIONS
As of January 2020
VENTURE PARTNERS
Dr Dan BakerVenture Partner
Nigel DewsVenture Partner
Jim ScopaVenture Partner
Craig YangFinancial Accountant
Maria BaasInvestor Relations Manager
Kate MaddenInvestment Analyst
Aaron TanInvestment Analyst
VC investment team: a combination of highly operational successful technology business founders and managers.
A headfirst, hands-on approach
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Libby McKenzie Administration Assistant
James McGrathInvestment Manager
Sarah Meibusch Principal
Nick GainsleyPrincipal
INVESTMENT TEAM
Gabriel Douville Investment Associate
John WestwaterPrincipal
INVESTMENT PRINCIPALS
Jelly JakobAccountant
Walter Lewin 1V CHAIRMAN
Founded / Exited 2 startups Ex-Director Seven West Media 10 years as venture capitalist
Former Hear of M&A and Financial Sponsors at Merrill Lynch Experienced angel and VC
Ex-MD Merrill Lynch Ex-MD Ord Minnett Advisor to VGI Partners
Founder of Viola Credit 5 successful venture debt funds 25 years in tech debt financing
Founding member of EY’s Israel M&A Team 6 years of venture debt year
James McGrathINVESTMENT MANAGER
[email protected]+61 420 982 334
Debt advisory and M&A at Credit Suisse, Citi and Allier Capital 4 years in VC at OneVentures
Nick GainsleyPRINCIPAL
[email protected]+61 413 219 005
7 years debt advisory at KPMG 6 years at Kreos capital (EU’s
largest venture debt firm) 50+ venture debt transactions
completed
Dr Michelle Deaker1V MANAGING PARTNER
Grant Chamberlain1V PARTNER
Ruthi SimhaGENERAL PARTNER
Ido VigdorGENERAL PARTNER
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VENTURE CREDIT INVESTMENT TEAM
ONEVENTURES PARTNER INVOLVEMENTVIOLA CREDIT PARTNERSHIP 5 Funds, $800M Deployment, 120 Transactions
Kate MaddenINVESTMENT ANALYST
[email protected]+61 428 768 662
Nearly 4 years at PwC in Business Restructuring 1 year secondment with KKR debt
The Venture Credit team
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DEBTREFRESH
The key differences between debt and equity are….
More expensive – but not guaranteed!• Dividends• Capital appreciation
Cheaper – but contractual!• Interest• Fees
SENIORITY Junior – but liquidation preferences Senior
UPSIDE Unlimited Capped return (+ warrants)
VOTING RIGHTS Yes No
RISK TO COMPANY Low – distributions are voluntary Higher – no repayments may lead to enforcement
EQUITY DEBT
RETURN (COST)
Also, debt is tax deductible - but you need to be profitable for that….9
Magnifies upside…
…but also magnifies losses
100% fall in equity
100% EQUITY 10% EQUITY / 90% DEBT
100% rise in equity
Leverage magnifies returns (and losses)
10% rise in equity10% Increase….
10% fall in equity10% Decrease….
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Different types of facilities Term Debt – Bullet
Term Debt – Amortising Overdraft
0102030405060708090
100
Faci
lity
(£m
)0
20
40
60
80
100
120
Faci
lity
(£m
)
0
20
40
60
80
100
120
Faci
lity
(£m
)
0
20
40
60
80
100
120
Faci
lity
(£m
)
1 Jan 17 1 Jan 18 1 Jan 191 Jan 17 1 Jan 20 1 Jan 21
1 Jan 17 1 Jan 18 1 Jan 191 Jan 17 1 Jan 20 1 Jan 21
1 Jan 17 1 Jan 18 1 Jan 191 Jan 17 1 Jan 20 1 Jan 21
1 Jan 17 1 Jan 18 1 Jan 191 Jan 17 1 Jan 20 1 Jan 21
Revolving Credit Facility
– e.g. working capital
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NOW, VENTURE CREDIT….
Flexible form of debt for high growth businesses
Delay financing rounds
Spend like equity but cheaper and less dilutive
Improves returns for existing shareholders
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Valuation
What is Venture Credit?
Insurance policyReduce dilution during equity
round
Instead of equitySupport company between rounds
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When to Use Venture Credit?
PRO
S
Avoid dilution (%)
No change to board
Cheaper than equity
Avoid pricing a round
Get new venture investor in
Faster (4-6 weeks)
CON
S
Sits senior to equity
Interest payments
Not right for every situation
Smaller cheque than equity
(when done alone)
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Why Raise Venture Debt vs Equity?
A loan, with equity options (aka warrants)
Senior-secured
Equal monthly payments (interest and principal)
Covenant light
No director guarantees
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What does it look like?
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Ordinary equity
Shareholder loans (convertible)
Junior debt (mezz)
Senior debt
Preferred equity
DEB
TEQ
UIT
Y L
IKE
DEB
T &
EQ
UIT
Y
Debt gets paid back first but accepts a lower return.
Where does it rank?
Size of loans $500k to $5M (more if we co-invest with our partner Viola or our LPs)
Term 12 - 36 months
Interest Rate Low double digit %
Availability Period
Don’t need to draw down everything up front
Repayment Monthly payments over life of loanNo refinancing wall
Purpose No restriction; working capital, R&D, marketing, acquisitions, other
Security
Senior securedCan carve out specific asset financing where appropriateNo personal director guarantees
Covenants Limited
Fees Transaction / Availability Fees
Information Rights
Board Observer rightMonthly reporting
Equity Component
Options in the company worth 1-4% of the company
Investment Right
Right to invest in equity in high performing companies
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What are the Terms?
Tech developed - product and service in market
$3M minimum revenue (recurring revenue preferable)
Stable improving unit economics
Raised $3-5m of equity (ideally VC backed) - Series A and beyond
High-growth (30%+ p.a.) performing companies
Cash burning or profitable19
What stage do I need to be?
Cost comparison
Debt terms – indicative example
Loan value ($M) 3.0
Loan term (months) 36
Interest rate Low double digit
Equity option Yes
Equity terms
Entry valuation ($M) 30.0
Exit valuation ($M) 150.0M
Equity Investment ($M) 3.0
Ownership Acquired 9.09%
0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
Total cost of venture debt Total cost of the equivalent equityinvestment
Cost
of f
inan
cing
($)
Equity cost Interest cost Upfront fees
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$10.6m
$1.9m
> 5x cheaper
Founders and investors can keep more for themselves
(Including warrants)
What About Other Types of Debt?
Venture Debt Convertible Note Working Cap Line Revenue based
Description Loan + options (used like equity)
Loan that redeems or converts to equity at discounted value
Revolving loan (can be drawn down and
topped up)
Loan with repayments linked to
revenue
Amount 10-50% ARR Any Usually <$500k 2-4x MRR $500k-3M
Repayments MonthlySometimes monthly,
generally none (converts)
Daily Monthly
Interest Low double digit 8-12% 5 – 10% Variable c.15 – 20%
Dilution 1 - 4% 20% (standard round) None 1 - 4%
Flexibility High High Low Very High
Secured Yes Depends Yes Yes
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INTENTION OF FUNDSSIZE AND SCALE OF BUSINESS
As a last resort
Low growth or turnaround scenario
When repayments burden the company.
DON’T OVERLEVERAGE!
Short term bridge to equity round
To replace equity
To fund pivot
Who should NOT consider venture credit?
Too early stage – No equity backing, pre Series A
Have not reached minimum scale – pre-revenue
Unit economics not bottomed out
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Things can go wrong in startups. You need to ask:
How did they deal with companies who didn’t hit forecasts or covenants
before?
What experience do they have in startups and acting as a venture debt lender?
Do they have relationships with your investors or
Directors?
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How to Select a Venture Debt Lender?
VC debt activity in US Very nascent in Australia due to
immaturity of market and conservativism Globally represents 10-15% of venture
financings, and 25% of later-stage venture financings
i.e. A$150-300m Australian potential p.a.
Maturity of market and sophistication / understanding of investors/managements should drive growth
How big is the venture credit market?
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Australian VC market Current market conditions:
Uncertainty Low consumer / business sentiment
Drying up of capital
Falling valuationsHow venture debt can help?
Access to capital – now or in the future
Avoid the ‘elephant in the room’ Cheaper than equity
Quick to execute
What changes during current market conditions?
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Used a similar debt product 26
Who has used it before?
Contact – 1V Venture Credit Fund
Nick Gainsley
M +61 413 219 005
Contact – General enquiries
P +61 2 8205 7379
Suite 13.02, 179 Elizabeth St Sydney NSW 2000
www.one-ventures.com
Contact – 1V Venture Credit Fund
James McGrath
M +61 420 982 334
What’s next in the series?
11 June: #RegTechEdgeNoBorders Digital Identity and KYC
25 June: #RegTechEdgeNoBorders People Risks
July: #RegTechEdgeNoBorders – topics TBA shortly
18 March, 2021: #ACCELERATERegTech 2021
December 2018July 2019
May 2020
Thank you
