Leases & Leasing Information


How Venture Leasing Added Millions To A Startups Equity Value


Craig Berman beamed noticeably after completing his board presentation. Berman, CEO of a startup that develops nanotechnology applications for the defense industry, had just closed a $ 20 million equity round. Berman finalized the round at an equity valuation that made the whole board blush. Only six months earlier, Berman's team faced a daunting technical delay that set the company back three months. With only four months of cash remaining from a previous equity round, the delay would cause Berman's company to burn cash faster and to fall short of an important benchmark.

The prospect of raising additional equity earlier than expected and at a much lower valuation than anticipated was a chilling thought for Berman and his board.

Just as things appeared to be headed downhill, the company's CFO broached the idea of obtaining $ 1.5 million in venture leasing. Roughly $ 600,000 of this financing would be used to finance existing equipment. The balance could be used for upcoming acquisitions of computer workstations, servers, software, and test equipment.

A colleague had introduced Jamal Waitley, the company's CFO, to Jerry Sprole. Sprole heads Connecticut-based, Leasing Technologies International, a leasing firm specializing in equipment financing for venture capital-backed startups and emerging growth companies. It took Waitley less than a month to get the financing in place. Cash from selling and leasing back existing equipment along with a leasing line to add new equipment allowed Berman's firm to operate three extra months without additional equity. When the firm finally completed its $ 20 million equity round, the pre-money valuation was at least $ 5 million more than it would have been otherwise. Venture leasing had literally created millions of dollars for Berman's shareholders.

Like Berman's firm, a growing number of venture capital-backed startups are taking advantage of venture leasing to build equity value faster and to expand infrastructure. What is venture leasing and why has it become so attractive to venture capital-backed startups' How are savvy entrepreneurs using venture leasing to increase shareholder value' To find answers, one must take a closer look at this important financing source for venture capital-backed startups.

The term venture leasing describes equipment financing provided by equipment leasing firms to pre-profit, early stage companies funded by venture capital investors. Like Berman's firm, these startups need business essentials like computers, networking equipment, software, and equipment for production and R&D. These firms generally rely on outside investor support until they prove their business models or achieve profitability.

Where does venture leasing fit into the venture financing mix' The relatively high cost of venture capital compared to venture leasing tells the story. To compensate venture capitalists for the risk they take, they generally receive sizeable equity stakes in the companies they finance. They typically seek investment returns of at least 35% on their investments over five to seven years. Their returns are achieved via an IPO or other sale of their equity stakes. In comparison, venture lessors seek a return in the 15% ' 22% range. These transactions amortize in two to four years and are secured by the underlying equipment. Although the risk to venture lessors is also high, venture lessors mitigate the risk by having a security interest in the leased equipment and structuring transactions that amortize. Taking advantage of the obvious cost advantage of venture leasing over venture capital, startup companies have turned to venture leasing as a significant source of funding to support their growth and to build equity value faster. Additional advantages to startups of venture leasing include the traditional leasing strong points --- conservation of cash for working capital, management of cash flow, flexibility, management of equipment obsolescence, and serving as a supplement to other available capital.

How do venture leasing firms evaluate transactions' Venture lessors look closely at several factors. Two of the main ingredients of a successful new venture are the caliber of its management team and of its venture capital sponsors. In many cases the two groups seem to find one another. A good management team has usually demonstrated prior successes in the field in which the new venture is active. The better venture capitalists have successful track records and direct experience with the types of companies they financed. The best VCs have industry specialization and many employ individuals with direct operating experience within the industries they finance.

After determining that the caliber of the management team and venture capitalists is high, a venture lessor looks at the startup's business model and market potential. During this evaluation the lessor considers questions such as: Does the business model make sense' Is the product/service necessary' Who is the targeted customer and how large is the potential market' How are products and services priced' What are the projected revenues' What are the production costs and what are the other projected expenses' Do these projections seem reasonable' How much cash is on hand and how long will it last the startup according to the projections' When will the startup need the next equity round' These, and questions like these, help the lessor determine whether the business plan and model are reasonable

The most important question facing a leasing company financing startups is whether there is sufficient cash on hand to support the startup through a significant part of the lease term. If the venture is unable to raise additional capital and runs out of cash, the lessor stands to lose money on the transaction. To mitigate this risk, most experienced venture lessors require that the startup have at least nine months of cash on hand before proceeding. Usually, startups approved by venture lessors have raised at least $ 5 million in venture capital and have not yet exhausted a healthy portion of this amount.

Where do startups turn to get venture leasing' Part of the infrastructure supporting startups is a handful of national leasing companies that specialize in venture leasing. Like the Connecticut-based lessor introduced to Waitley, these firms have experience and expertise in structuring, pricing and documenting transactions, performing due diligence, and working with startup companies through their ups and downs.

Most venture lessors provide leases to startups under lines of credit so that customers can schedule multiple takedowns during the year. These lease lines typically range from as little as $200,000 to over $ 5,000,000, depending on the start-up's need, projected growth and the level of venture capital support. The better venture lease providers also assist customers, directly or indirectly, in identifying other resources to support their growth. They help customers acquire equipment at better prices, arrange takeouts of existing equipment, find additional working capital funding, locate temporary CFO's, and provide introductions to potential strategic partners--- these are all value-added services the best venture lessors bring to the table.

While Craig Berman's story is only an illustration based on an actual financing, many venture capital-backed startups are discovering that venture leasing can leverage venture capital to boost shareholder value. These startups are then able to use their venture capital for growth activities that build enterprise value, like product development, bringing in management talent and expanding their marketing efforts. Since venture leasing is more cost effective than venture capital, requires no board representation or loss of management control, and usually results in little or no equity dilution, this rapidly growing financing for start-ups is reaching the radar screens of many savvy entrepreneurs.

George Parker is a Director and Executive Vice President of Leasing Technologies International, Inc. ('LTI'), responsible for LTI?s marketing and financing efforts. A co-founder of LTI, Mr. Parker has been involved in secured lending and equipment financing for over twenty years. Mr. Parker is an industry leader, frequent panelist and author of several articles pertaining to equipment financing.

Headquartered in Wilton, CT, LTI is a leasing firm specializing nationally in direct equipment financing and vendor leasing programs for emerging growth and later-stage, venture capital backed companies. More information about LTI is available at: http://www.ltileasing.com.


MORE RESOURCES:
This RSS feed URL is deprecated, please update. New URLs can be found in the footers at https://news.google.com/news


Times of Oman

Abdullah Al Salmi to inaugurate major IFRS workshop
Times of Oman
The other standard IFRS 16 deals with leases. Leasing is a key financial solution enabling companies to use property, plant and equipment without the need to incur large initial cash outflows. Current standard generally require lessees to account for ...



Form 8-K/A WillScot Corp For: Aug 15
StreetInsider.com
The Company's primary business is conducted through operating leases. Leasing revenue from operating leases is recognized in income on a straight-line basis over the lease term. Leasing billings for periods extending beyond month-end or. 19 ...



Malaysia: Leasing - A Guide To Leasing In Labuan
Mondaq News Alerts
Over the years, Labuan International Business and Financial Centre's (Labuan IBFC) leasing sector has grown in tandem with the region's economic growth, as demand for capital equipment has showed no sign of abating in order to meet the demands of a ...



Australia: Leasing update - recent and potential future challenges for landlords
Mondaq News Alerts
IN BRIEF - RETAIL LANDLORDS SHOULD CONTINUE TO BE MINDFUL OF RECENT CHANGES TO NSW RETAIL LEGISLATION AND ALL LANDLORDS GENERALLY WILL NEED TO BE AWARE OF UPCOMING REFORMS IN INSOLVENCY LAW.

and more »


Club Industry

Financing Options for Fitness Studio Owners in Today's Market
Club Industry
Capital Leases – Leasing Equipment to Own. The most common financing option for fitness equipment is a capital lease. The main purpose of a capital lease is to finance the equipment purchase while preserving the owner's working capital. Fitness studio ...



blogs.hbr.org (blog)

Is Rooftop Solar Finally Good Enough to Disrupt the Grid?
blogs.hbr.org (blog)
They are offered either solar leases (leasing the panel and its energy for a fixed periodic payment) from a solar company, power purchase agreements (they purchase each unit of electricity produced by the panel at an agreed upon rate), or solar loans ...

and more »


WyoFile

Mead unfazed by Zinke's sage grouse plan
WyoFile
As the BLM and Forest Service look to revise, and some say weaken, federal plans to protect grouse, Zinke continues to offer more energy leases. Leasing plans this year have provoked pushback and protests, including charges that the 2015 protections ...



United States: Leasing Tips For Commercial Landlords And Tenants: Who Owns The "Fixtures" When The Lease ...
Mondaq News Alerts
Last Updated: August 3 2015. Article by Christopher Tesar · Blank Rome LLP · LinkedIn · Twitter · Facebook. When a lease expires, it is not uncommon for landlords and tenants to dispute what constitutes the landlord's property and what constitutes the ...

and more »


Weingarten Realty Investors' (WRI) CEO Drew Alexander on Q4 2017 Results - Earnings Call Transcript
Seeking Alpha
Weingarten Realty Investors (NYSE:WRI) Q1 2018 Earnings Conference Call April 25, 2018 11:00 AM ET. Executives. Michelle Wiggs - VP IR. Drew Alexander - President and CEO. Steve Richter - EVP and CFO. Johnny Hendrix - EVP and COO. Analysts.

and more »


TIME

Used Car Prices Are Plummeting. Here's Why
TIME
All of those new vehicle purchases and leases have translated to a parallel rise in trade-ins and cars coming off leases. “Leasing has surged in recent years with thousands of those cars coming back to dealerships as used cars,” Michelle Krebs, ...

and more »

Google News

home | site map
© 2007