Getting Your Venture Lease Approved

Each year venture capitalists fund more than 2,500 start-up companies in the U.S. Many of these companies try to conserve their equity capital by approaching venture-leasing firms to secure equipment financing. By obtaining lease financing, these savvy firms are able to use their equity capital for high-impact activities like recruiting key personnel, product development, and expanding their marketing efforts.

What are the qualities that make some start-ups more attractive than others to venture lessors? Here are ten factors that most venture lessors evaluate to decide which start-ups to finance:

Caliber of the Management Team

Most venture lessors consider the start-up's management team to be the most critical success factor for the venture. Though it can be challenging to quickly evaluate management talent, there are several qualities that venture lessors consider. They look for experienced managers with high integrity and a proven history of business performance.

Quality of the Venture Capital Sponsors

Another important factor for most venture lessors is the quality of the start-up's venture capital sponsors. Venture lessors look for experienced venture capitalists with successful investment performance over a number of years. The venture capitalists should also have good reputations for dealing fairly with creditors serving their portfolio companies. Before entering new lease arrangements, most venture lessors verify that the start-ups' venture capital sponsors are actively supporting them.

Soundness of the Business Plan

Successful start-ups usually have compelling, well-articulated business plans. Lessors look for signs that the start-ups have promising market opportunities, clear and credible projections, and reliable financial statements.

Cash Position /Monthly Burn Rate

A yardstick used by many venture lessors to measure risk is the start-up's projected cash consumption rate. The ratio of available cash to the start-up's monthly burn rate is a useful measure. It crudely determines how long the start-up can last before a new equity round is needed. The lessor views a transaction as less risky if the start-up can make full payments during a significant portion of the lease term without raising additional equity. Most lessors look for a ratio that supports at least 9 ? 12 months of the start-up's operation.

Equipment Quality

The quality and intended use of the equipment is an important factor for most venture lessors. Most lessors look for transactions involving equipment that is essential to the start-up's operation. Additionally, the equipment should have acceptable collateral value and be readily re-marketable in the equipment aftermarket.

Product Prospects and Revenue Track Record

If the start-up is in the development stage and has yet to sell products, venture lessors generally look for products capable of establishing a strong market position. If the start-up's product is already in distribution, lessors look for strong monthly or quarterly revenue growth. A poor reception of the product in the early stages, when measured against the business plan, can often signal a faulty product launch or faulty product concept.

Valuation History

A valuation history records the share prices of stock sold to investors by the start-up. Unless there is a good explanation, most lessors look for significant share price appreciation over successive offering rounds. The assumption is that the start-up is making steady and significant progress in its development, which will be reflected in rising share values.

Balance Sheet Strength

Venture lessors usually evaluate a start-up's working capital to ensure that the start-up can make payments when due. Along with an analysis of the start-up's burn rate, lessors use traditional working capital measures like the current and quick ratios. Lessors also look for other signs of balance sheet strength, such as: low to moderate leverage; positive tangible net worth (inclusive of subordinated debt); and minimum paid-in capital of $7 - $10 million.

Outside Professional Involvement

Most venture lessors view the involvement of reputable and successful outside board members as a positive factor for start-ups. A reputable CPA firm, law firm, institutional partners and/or service providers are also viewed by lessors as positive. These professionals can bring valuable expertise and contacts that can help the new venture to succeed.

Payment Performance

As with more traditional lessees, venture-leasing companies frown upon poor lessee payment histories. Most venture lessors expect lessees to have satisfactory payment histories, unless good explanations can be offered. Like other vendors, satisfactory payment of bills by customers is where the rubber meets the road. Whether the lessee is a start-up or a Fortune 500 company, most lessors view prompt payment as sacrosanct.

While venture lessors use additional factors to make their credit decisions, these ten factors seem to be used universally. Though most of these factors are subjective, they have stood the test of time for venture lessors in making informed and reasonable credit decisions.

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.

---

Using Equipment Leasing as a Competitive Weapon

Most great generals know how to design winning battle plans.... Read More

Basic Things You Should Know About A Lease Purchase Contract

What exactly is a contract?By definition, a contract is an... Read More

The Lease And Purchase Option

If you have an investment property, should you rent it... Read More

The Leverage of the Lease

In today's rapidly changing business environment it makes sense to... Read More

Ten Ways to Save a Bundle on Your Next Lease

According to the Equipment Leasing Association ("ELA"), U.S. businesses lease... Read More

Smart Car Leasing for Beginners

Car leasing is extremely popular because it provides an attractive... Read More

Equipment Leasing Blunders That Can Cost Your Firm a Mint

Rod McHenry, the financial vice president of a document imaging... Read More

Dodging Leasings Grim Reaper: Navigating a Payment Default

In her third Harry Potter novel, ?The Prisoner of Azkaban?,... Read More

Lease or Buy? That is Always the Question with Car Financing

Leasing is a perfectly viable and legitimate way to finance... Read More

True Tenant Tales, Volume One

Working with tenants can be an amazing experience. (Owners and... Read More

Leases And Tenants - The Spooky Tenant

You, Mr. Landlord are pleased to find qualified tenants for... Read More

Venture Leasing - A Smarter Way To Build Enterprise Value

In 2003, venture capitalists and investors dispensed over $18 billion... Read More

Increase Your Business Growth and Cash Flow Through Equipment Leasing

"If it can be manufactured, it can be leased." For... Read More

Landlord Tips And Tricks

Every real estate investor dealing in rental homes has done... Read More

Ten Equipment Leasing Tips - Save a Bundle on Your Next Lease

According to the Equipment Leasing Association ("ELA"), U.S. businesses lease... Read More

What to Consider Before Leasing a Car

Some people choose to lease a car rather than buying... Read More

Warning - This Lease Might Explode Any Minute

Mike Caringi, owner of a small New Jersey business that... Read More

Terms to Know Before Leasing A Vehicle - Leasing Jargon Simplified

So, you've decided that you want to lease that next... Read More

With a Lease, The Devil Is In The Details

In the last article we looked at a few of... Read More

What Happens When the Anchor Tenant Moves and You Are On a Ten-year Lease?

Recently there was an article in the Houston Business Journal... Read More

Insiders Guide to Snaring the Best Lease Deal

Every year, thousands of business owners and financial managers are... Read More

Ten Ways Start-ups Use Venture Leases And Loans To Generate Millions

The rise of venture leasing and lending has created an... Read More

So You Want to be a Landlord?

The residual income from owning rental properties may bring more... Read More

Getting Your Venture Lease Approved

Each year venture capitalists fund more than 2,500 start-up companies... Read More

Lease Contracts - The Meaning of Joint and Several

When you see the phrase "joint and several" in a... Read More

How Venture Leasing Added Millions To A Startups Equity Value

Craig Berman beamed noticeably after completing his board presentation. Berman,... Read More

Pricing Your Apartments

How do you fix a price point for an apartment?... Read More

Interim Rent: Equipment Leasing?s Trap Door

Many lessees enter into lease transactions that they believe are... Read More

How To Choose An Equipment Leasing Company

Leasing has become a preferred form of equipment financing, accounting... Read More

Venture Leasing: Startup Financing On the Rise

According to Pricewaterhouse Coopers, investment by institutional venture capitalists in... Read More

Explore An Effective Revolutionary Approach To Traditional Business Financing

For business owners who need working capital now there is... Read More