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Venture Capital versus Debt Financing


Venture Capital

Debt Financing

Objective Realise 'market' investment returns Regular interest & principal payments
Holding Period Long term Short/medium term
Instruments Common & preference shares,
convertible warrants, options
Loans, factoring, installment plans
Collateral No Yes
Pricing Earnings multiple, NTA Interest spread
Impact on Balance Sheet Reduce leverage Increase leverage
Impact on Cash-Flow Cash sourced from the market Cash sourced from the borrower
Impact on P & L Below the line Above the line
Exit Mechanism Listing, buy-back, sale to 3rd parties Loan repayments


Recommended further reading:
Venture Funding Procedure
Guide To Writing A Business Plan
Is VC good for Your Business?
Learn About Capital Sources
Frequently Asked Questions
Preliminary submission for Venture Capital
Business Plan information and resources