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Top Articles - Venture Leasing: Startup Financing On the Rise
According to Pricewaterhouse Coopers, investment by institutional venture capitalists in startups grew from less than $3.0 billion at the beginning of the 1990’s to over $106 billion in 2000. Although venture capital volume has retreated significantly since the economic “bubble” years of the late 1990’s, the present volume of around $ 19 billion per year still represents a substantial rate of growth. Venture c
According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product
apitalists will fund more than 2,500 high growth startups in the U.S. this year.
The growth in venture capital investing has given rise to a relatively new and expanding area of equipment leasing known as ‘venture leasing’. Exactly what is venture leasing and what has fueled its growth since the early 1990’s? Why has venture leasing become so attractive to venture capital-backed startups? To find answers, o
The growth in venture capital investing has given rise to a relatively new and expanding area of equipment leasing known as ‘venture leasing’. Exactly what is venture leasing and what has fueled its growth since the early 1990’s? Why has venture leasing become so attractive to venture capital-backed startups? To find answers, o
; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.
Examples of combination products may in
Examples of combination products may in
ne must look at several important developments that have bolstered the growth of this important equipment leasing segment.
The term venture leasing describes equipment financing provided by equipment leasing firms to pre-profit, early stage companies funded by venture capital investors. These startups, like most growing businesses, need computers, networking equipment, furniture, telephone equipment, and equi
The term venture leasing describes equipment financing provided by equipment leasing firms to pre-profit, early stage companies funded by venture capital investors. These startups, like most growing businesses, need computers, networking equipment, furniture, telephone equipment, and equi
lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.
pment for production and R&D. They rely on outside investor support until they prove their business models or achieve profitability. Fueling the growth in venture leasing is a combination of several factors, including: renewed economic expansion, improvement in the IPO market, abundant entrepreneurial talent, promising new technologies, and government policies favoring venture capital formation.
In this enviro
In this enviro
here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe
nment, venture investors have formed a sizeable pool of venture capital to launch and support the development of many new technologies and business concepts. Additionally, an array of services is now available to support the development of startups and to promote their growth. CPA firms, banks, attorneys, investment banks, consultants, lessors, and even search firms have committed significant resources to this
d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.
Combination pro
Combination pro
emerging market segment.
Where does equipment leasing fit into the venture financing mix? The relatively high cost of venture capital versus venture leasing tells the story. Financing new ventures is a high risk proposition. To compensate venture capitalists for this risk, they generally require a sizeable equity stake in the companies they finance. They typically seek investment returns of at least 35% on
Where does equipment leasing fit into the venture financing mix? The relatively high cost of venture capital versus venture leasing tells the story. Financing new ventures is a high risk proposition. To compensate venture capitalists for this risk, they generally require a sizeable equity stake in the companies they finance. They typically seek investment returns of at least 35% on
ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc
their investments over five to seven years. Their return is achieved via an IPO or other sale of their equity stake. 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 eq
Although the risk to venture lessors is also high, venture lessors mitigate the risk by having a security interest in the leased eq
easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi
uipment and structuring transactions that amortize. Appreciating 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. Additional advantages to the startup of venture leasing include the traditional leasing strong points --- conservation of cash for working capital, management of cash flo
nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically
w, flexibility, and serving as a supplement to other available capital.
What makes a ‘good’ venture lease transaction? Venture lessors look at several factors. Two of the main ingredients of a successful new venture are the caliber of its management team and the quality of its venture capital sponsors. In many cases the two groups seem to find one another. A good management team has usually demonstrated pri
What makes a ‘good’ venture lease transaction? Venture lessors look at several factors. Two of the main ingredients of a successful new venture are the caliber of its management team and the quality of its venture capital sponsors. In many cases the two groups seem to find one another. A good management team has usually demonstrated pri
and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ
or successes in the field in which the new venture is active. Additionally, they must have experience in the key business functions—sales, marketing, R&D, production, engineering, and finance. Although there are many venture capitalists financing new ventures, there can be a significant difference in their abilities, staying power, and resources. The better venture capitalists have successful track records a
ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi
nd direct experience with the type of companies they financed.
The best VCs have industry specialization and many are staffed by individuals with direct operating experience within the industries they finance. The amount of capital a venture capitalist allocates to the startup for future rounds is also important. An otherwise good VC group that has exhausted its allocated funding can be problematic.
After d
The best VCs have industry specialization and many are staffed by individuals with direct operating experience within the industries they finance. The amount of capital a venture capitalist allocates to the startup for future rounds is also important. An otherwise good VC group that has exhausted its allocated funding can be problematic.
After d
ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.
Following aspects would a
Following aspects would a
etermining that the caliber of the management team and venture capitalists is high, a venture lessor looks at the startup’s business model and market potential. It is unrealistic to expect expert evaluation of the technology, market, business model and competitive climate by equipment leasing firms. Many leasing firms rely on experienced and reputable venture capitalists who have evaluated these factors during
dd to the challenges in developing combination products:
Which markets to tap where the combination products can do fairly well?
Which combination prod
Which markets to tap where the combination products can do fairly well?
Which combination prod
their ‘due diligence’ process. However, the lessor must still undertake significant independent evaluation. During this evaluation he considers questions such as: Does the business plan make sense? Is the product/ service necessary, who is the targeted customer and how large is the potential market? How are products and services priced and what are the projected revenues? What are the production costs and w
cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin
hat are the other projected expenses? Do these projections seem reasonable? How much cash is on hand and how long will it last the startup according to the projections? When will the startup need the next equity round? These, and questions like these, help the lessor determine whether the business plan and model are reasonable
The most basic credit question facing the leasing company considering leasing eq
The most basic credit question facing the leasing company considering leasing eq
tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen
What would be the developing cost?
How to tackle the risks encountered during combination product developmen
uipment to a startup is whether there is sufficient cash on hand to support the startup through a significant part of the lease term. If no more venture capital is raised and the venture runs out of cash, the lessor is not likely to collect lease payments. To mitigate this risk, most experienced venture lessors require that the startup have at least nine months or more of cash on hand before proceeding. Usuall
t?
As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel
As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel
y, startups approved by venture lessors have raised $ 5 million or more in venture capital and have not yet exhausted a healthy portion of this amount.
Where do startups turn to get their leases funded? Part of the infrastructure supporting venture startups is a handful of national leasing companies that specialize in venture lease transactions. These firms have experience in structuring, pricing and documen
Where do startups turn to get their leases funded? Part of the infrastructure supporting venture startups is a handful of national leasing companies that specialize in venture lease transactions. These firms have experience in structuring, pricing and documen
ping new procedures for reviewing their safety, efficacy and quality.
Professional from academic institutions, pharmaceutical industries, health care indust
Professional from academic institutions, pharmaceutical industries, health care indust
ting transactions, performing due diligence, and working with startup companies through their ups and downs. The better venture lessors respond quickly to lease proposal requests, expedite the credit review process, and work closely with startups to get documents executed and the equipment ordered. Most venture lessors provide leases to startups under lines of credit so that the lessee can schedule multiple ta
y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products
kedowns during the year. These lease lines typically range from as little as $200,000 to over $ 5,000,000, depending on the start-up’s need, projected growth and the level of venture capital support.
The better venture lease providers also assist customers, directly or indirectly, in identifying other resources to support their growth. They help the startup acquire equipment at better prices, arrange takeout
The better venture lease providers also assist customers, directly or indirectly, in identifying other resources to support their growth. They help the startup acquire equipment at better prices, arrange takeout
.
As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de
As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de
s of existing equipment, find additional working capital funding, locate temporary CFO’s, and provide introductions to potential strategic partners--- these are all value-added services the best venture lessors bring to the table.
What is the outlook for venture leasing? Venture leasing has really come into its own since the early 1990s. With venture investors pouring tens of billion of dollars into startups
What is the outlook for venture leasing? Venture leasing has really come into its own since the early 1990s. With venture investors pouring tens of billion of dollars into startups
elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.
Companies that provide selfless information through particip
Companies that provide selfless information through particip
annually, this market segment has evolved into an attractive one for the equipment leasing industry. The most attractive industries for venture leasing include life sciences, software, telecommunications, information services, medical services and devices, and the Internet. As long as the factors supporting the formation of startups remain favorable, the outlook for venture leasing continues to look promising.
tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products
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