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.
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.
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