venture leasing is becoming more popular as a means of funding startups.

Pricewaterhouse Coopers reports that between the early 1990s and the year 2000, institutional venture capitalists invested more than $36.0 billion in companies. The current volume of approximately $19 billion per year is still a very healthy pace of growth, even though venture capital volume has declined substantially since the economic "bubble" years of the late 1990s. In the United States alone, almost 2,500 high-growth firms will receive funding from venture capitalists this year. "Venture leasing" is a new and growing subset of equipment leasing that emerged in response to the explosion of venture capital investments. How did venture leasing come to be, and what factors have contributed to its meteoric rise since the early 90s? For what reasons has venture leasing grown in popularity among firms supported by venture capital? If we want to know why this equipment leasing industry has been growing at such a rapid pace, we need to examine a few key trends.

The phrase "venture leasing" refers to the practice of equipment leasing companies providing financing to startups and early-stage businesses that have received funding from venture capitalists. Like any other expanding company, these new ventures will require office furniture, computers, networking gear, telephones, and manufacturing and research and development tools. Until they find a way to make money or verify their business concepts, they depend on funding from other sources. A number of causes are boosting venture leasing, such as a revival in economic growth, an improvement in the initial public offering (IPO) market, a surplus of entrepreneurial talent, exciting new technological developments, and government laws that encourage the formation of venture capital. In this setting, a sizable pool of venture capital has been amassed by venture capitalists, who have used it to establish and fund the development of several innovative business concepts and technologies. Furthermore, a plethora of services are now accessible to aid in the creation and expansion of companies. Many established businesses have poured resources into this new sector, including accounting firms, financial institutions, legal firms, investment banks, consultancies, lessors, and even search engines.

In the context of venture capital, what role does equipment leasing play? What really gets under people's skin is the disparity between the costs of venture capital and venture leasing. New venture financing carries a significant degree of risk. In order to recoup their costs, venture capitalists often demand a substantial equity stake from the businesses they back. In the five to seven years after making an investment, they usually aim for a return of at least 35%. Public offerings (IPOs) or other sales of equity stakes allow them to recoup their investment. Venture lessors, on the other hand, are looking for a return of around 20-22%. The collateralized equipment has an amortization period of two to four years. However, venture lessors reduce their exposure to risk through the use of security interests in leased equipment and amortization-structured arrangements. Venture leasing has become an important source of finance for young enterprises due to the clear cost advantage it offers over venture capital. Venture leasing has additional benefits for startups that are associated with standard leasing, such as helping to conserve working capital, managing cash flow, providing flexibility, and supplementing other available funding.

In your opinion, what constitutes a "good" venture lease deal? Venture lessors consider a number of things. A new enterprise's management team and venture capital sponsors are two of the most important components for its success. It seems like the two groups often end up meeting each other. If the new venture's management team is any good, they should have a track record of success in the industry. They should also be well-versed in the fundamentals of running a company, including marketing, sales, research and development, production, engineering, and finance. While there is no shortage of venture investors willing to put money into new businesses, their skills, persistence, and connections can vary greatly. The best venture capitalists have served as backers to similar businesses before and have a proven record of success. Many of the top venture capital firms have employees with extensive operational experience in the sectors they fund, and most of them focus on a particular area. Another crucial factor is the amount of money that venture capitalists put into a firm for subsequent funding rounds. It can be troublesome for a VC organization that is otherwise good to have used all of its allocated funds.

Venture lessors assess the startup's business plan and market potential after making sure the management team and VCs are top-notch. Equipment leasing companies cannot be expected to provide expert assessments on technological developments, market trends, business models, and competitive environments. During their "due diligence," many respected venture investors have considered these aspects, and as a result, many leasing companies depend on them. Yet, substantial independent examination remains the responsibility of the lessor. While conducting this assessment, he takes into account inquiries like: Would you say the business idea is reasonable? How big is the prospective market, who is the target consumer, and is the product/service necessary? What are the expected sales figures and how are items and services priced? In addition to the anticipated expenditures, what are the costs of production? Do you think these estimates are fair? Is there a prediction for how much time the startup can run on its current cash? When is the next equity round that the startup will require? The answers to these and similar questions aid the lessor in assessing the viability of the company model and plan.

Leasing companies evaluate startups for equipment leases, but the most fundamental credit issue they must ask is whether the firm has enough cash on hand to cover a substantial portion of the lease period. The lessor has little hope of collecting lease payments in the event that the business runs out of funding and no further venture capital is raised. Most seasoned venture capitalists will insist that a firm have nine months' worth of cash on hand before they will invest. This is to reduce the risk of losing money. Venture lessors typically back companies that have raised $5 million or more in funding and haven't even used a significant proportion of it yet.

When looking to finance a lease, where do entrepreneurs typically turn? A small number of national leasing firms that focus on venture lease transactions are an integral part of the infrastructure that supports venture entrepreneurs. Performing due diligence, assisting startups through their highs and lows, and structuring, pricing, and documenting agreements are all areas in which these firms excel. The best venture lessors are fast to respond when companies ask for lease proposals, they work closely with startups to get paperwork done and equipment ordered, and they speed up the credit review process. In order to allow the lessee to plan numerous takedowns throughout the year, most venture lessors provide leases to startups with lines of credit. The amount of venture capital backing, the startup's anticipated growth, and other factors determine the normal range of these lease lines, which can be anywhere from $200,000 to more than $5,000,000. A good venture lease provider will also help their clients find other resources that can help them grow, either directly or indirectly. The best venture lessors offer a wide range of value-added services to startups, including negotiating better equipment acquisition prices, arranging for the takeout of existing equipment, securing additional working capital funding, finding temporary CFOs, and connecting them with potential strategic partners.

Where does venture leasing stand now? Since the early 1990s, venture leasing has truly flourished. This sector has developed into a desirable target for equipment leasing companies as a result of the tens of billions of dollars that venture capitalists invest each year into new businesses. Software, Internet, healthcare, software as a service, telecommunications, information services, and the life sciences are some of the most alluring sectors for venture financing. For venture leasing, the future is bright so long as conditions are right for new businesses to spring up.

Oh my goodness!

Location:

Share :