Convertible Notes and Startup Funding
February 12, 2025
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In the previous few articles, we have already learned about how venture capital and venture debt work. We now also know the pros and cons of venture debt. However, there is another form of debt called venture leasing which is commonly used by investors in the marketplace. In this article, we will have a closer look at the concept of venture leasing as well as how it can be used to provide better financial assistance to start-ups.
Venture leasing is just like regular leasing in the sense that it is a service under which one party provides an asset to another party for a short period of time. In return, the second party provides a payment to the first party. Generally, leasing is considered to be a form of debt. Hence, leasing companies provide their equipment only to corporations that have a stable track record and are likely to be able to pay their lease payments from their free cash flows.
Venture leasing companies operate differently. Venture leasing is all about lending money to corporations that do not have the financial wherewithal to pay lease payments on their own. This means that these companies either do not have any revenue or that their revenue is not enough to cover their expenses. Hence, in a way, these companies are dependent upon additional inflow from venture capital companies in order to be able to pay the leasing payments.
Needless to say that leasing out to such companies with unstable cash flows is challenging and requires special skill. However, venture leasing is widely used by many entrepreneurs since it provides many advantages. Some of the advantages of venture leasing have been listed below.
The advantages of venture leasing have been mentioned below:
Also, venture leasing is often referred to as “just in time financing”. This is because start-up companies can decide to take the equipment on lease exactly when they require it. This allows them to be more efficient from an operational point of view and save costs.
Founders can use venture leasing to ensure that their precious equity capital is not locked up in assets. Instead, they utilize the capital of a venture leasing company to finance equipment while conserving their own capital to increase the growth rate of the firm.
There are several disadvantages of venture leasing as well. Some of these disadvantages have been written below:
The bottom line is that venture leasing is another tool at the disposal of the start-up founders. They need to ensure that they understand the pros and cons of venture leasing before they decide to deploy it.
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