| Each year venture capitalists fund more than 2,500 | | | | the equipment should have acceptable collateral value |
| start-up companies in the U.S. Many of these | | | | and be readily re-marketable in the equipment |
| companies try to conserve their equity capital by | | | | aftermarket. |
| approaching venture-leasing firms to secure | | | | Product Prospects and Revenue Track Record |
| equipment financing. By obtaining lease financing, | | | | If the start-up is in the development stage and has |
| these savvy firms are able to use their equity capital | | | | yet to sell products, venture lessors generally look |
| for high-impact activities like recruiting key personnel, | | | | for products capable of establishing a strong market |
| product development, and expanding their marketing | | | | position. If the start-up's product is already in |
| efforts. | | | | distribution, lessors look for strong monthly or |
| What are the qualities that make some start-ups | | | | quarterly revenue growth. A poor reception of the |
| more attractive than others to venture lessors? Here | | | | product in the early stages, when measured against |
| are ten factors that most venture lessors evaluate | | | | the business plan, can often signal a faulty product |
| to decide which start-ups to finance: | | | | launch or faulty product concept. |
| Caliber of the Management Team | | | | Valuation History |
| Most venture lessors consider the start-up's | | | | A valuation history records the share prices of stock |
| management team to be the most critical success | | | | sold to investors by the start-up. Unless there is a |
| factor for the venture. Though it can be challenging | | | | good explanation, most lessors look for significant |
| to quickly evaluate management talent, there are | | | | share price appreciation over successive offering |
| several qualities that venture lessors consider. They | | | | rounds. The assumption is that the start-up is making |
| look for experienced managers with high integrity and | | | | steady and significant progress in its development, |
| a proven history of business performance. | | | | which will be reflected in rising share values. |
| Quality of the Venture Capital Sponsors | | | | Balance Sheet Strength |
| Another important factor for most venture lessors is | | | | Venture lessors usually evaluate a start-up's working |
| the quality of the start-up's venture capital sponsors. | | | | capital to ensure that the start-up can make |
| Venture lessors look for experienced venture | | | | payments when due. Along with an analysis of the |
| capitalists with successful investment performance | | | | start-up's burn rate, lessors use traditional working |
| over a number of years. The venture capitalists | | | | capital measures like the current and quick ratios. |
| should also have good reputations for dealing fairly | | | | Lessors also look for other signs of balance sheet |
| with creditors serving their portfolio companies. | | | | strength, such as: low to moderate leverage; positive |
| Before entering new lease arrangements, most | | | | tangible net worth (inclusive of subordinated debt); |
| venture lessors verify that the start-ups' venture | | | | and minimum paid-in capital of $7 - $10 million. |
| capital sponsors are actively supporting them. | | | | Outside Professional Involvement |
| Soundness of the Business Plan | | | | Most venture lessors view the involvement of |
| Successful start-ups usually have compelling, | | | | reputable and successful outside board members as a |
| well-articulated business plans. Lessors look for signs | | | | positive factor for start-ups. A reputable CPA firm, |
| that the start-ups have promising market | | | | law firm, institutional partners and/or service |
| opportunities, clear and credible projections, and | | | | providers are also viewed by lessors as positive. |
| reliable financial statements. | | | | These professionals can bring valuable expertise and |
| Cash Position /Monthly Burn Rate | | | | contacts that can help the new venture to succeed. |
| A yardstick used by many venture lessors to | | | | Payment Performance |
| measure risk is the start-up's projected cash | | | | As with more traditional lessees, venture-leasing |
| consumption rate. The ratio of available cash to the | | | | companies frown upon poor lessee payment histories. |
| start-up's monthly burn rate is a useful measure. It | | | | Most venture lessors expect lessees to have |
| crudely determines how long the start-up can last | | | | satisfactory payment histories, unless good |
| before a new equity round is needed. The lessor | | | | explanations can be offered. Like other vendors, |
| views a transaction as less risky if the start-up can | | | | satisfactory payment of bills by customers is where |
| make full payments during a significant portion of the | | | | the rubber meets the road. Whether the lessee is a |
| lease term without raising additional equity. Most | | | | start-up or a Fortune 500 company, most lessors |
| lessors look for a ratio that supports at least 9 - 12 | | | | view prompt payment as sacrosanct. |
| months of the start-up's operation. | | | | While venture lessors use additional factors to make |
| Equipment Quality | | | | their credit decisions, these ten factors seem to be |
| The quality and intended use of the equipment is an | | | | used universally. Though most of these factors are |
| important factor for most venture lessors. Most | | | | subjective, they have stood the test of time for |
| lessors look for transactions involving equipment that | | | | venture lessors in making informed and reasonable |
| is essential to the start-up's operation. Additionally, | | | | credit decisions. |