What are Debt Raises, and How do They Impact Venture Capital?

3/7/22, 1:14 PM

What are Debt Raises, and How Do They Impact Venture Capital? | David C. Branch | Finance

a What are Debt Raises, and How Do They Impact Venture Capital?

by David C. Branch | Mar 7, 2022 | blog, David C. Branch, Education, Finance

When an executive team or entrepreneur decides to begin or expand a business, they often seek investors.

Public and private investment teams that specialize in capital contributions often look for new business ventures. For this reason, the funds derived from these investors are referred to as venture capital.

Whether a business is newly forming or is established and growing, venture capital can be used. Capital assets are an important part of funding and a great way to earn investor confidence and other lending sources. It is important to note that not all venture capital comes in the form of cash contributions.

Debt Instruments Just about any for-profit entity can utilize debt instruments as a measure of capital. The easiest example of a debt instrument is government-issued bonds. Local, state, and federal governments issue bonds to raise funds for a specific project. Infrastructure projects such as roadways and public parks are common instances that depend on bond proceeds for completion. Bond ratings vary, and government bonds are https://davidcbranch.com/what-are-debt-raises-and-how-do-they-impact-venture-capital/

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3/7/22, 1:14 PM

What are Debt Raises, and How Do They Impact Venture Capital? | David C. Branch | Finance

generally considered among the lowest risk bond issuances. Corporate and junk bonds may present a higher risk and offer a higher interest rate.

Other examples of debt instruments include loans, loan preapprovals, lines of credit, and even credit cards.

Each of these instruments represents vehicles that can produce cash for a company, and the available credit potential of a company represents their creditworthiness and may be an incentive for venture capitalists. On the other hand, an investor may be wary of a company that could take advantage of all the available fund opportunities and may find it difficult to repay on time.

Equity Instruments Investors and venture capitalists may choose to round out their portfolios with equity instruments. Equity markets, such as stock exchanges, frequently trade equity instruments. The main difference between debt and equity instruments is that debt instruments are based on something to be collected in the future, and equity instruments are based on something tangible that already exists. Shares of common or preferred company stock are a common equity instrument. Buildings, equipment, and profit-sharing statistics could also be considered forms of equity. Companies leverage both debt and equity instruments to attract investors and raise venture capital.

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