Understanding Venture Debt Funding for Life Sciences Companies

May 15, 2023

The life sciences industry is fueled by innovation, knowledge and insight. Thriving companies within this industry, whether biotechnology, pharmaceuticals, medical devices, diagnostics or research tools, must continuously evolve to meet challenges, regulatory hurdles and emerging technologies.

This unique industry requires equally unique financing solutions to maintain innovation across the business lifecycle. Traditional financing options may not always align with the company’s specific needs because of industry complexity. Effective financing solutions, deal structures and facilities require extensive subject matter expertise, knowledge and experience.

Debt financing solutions for the life sciences industry:

Venture debt is a type of debt financing obtained by early and growth-stage companies and is typically used as a complementary method to equity financing. At its core, venture debt is designed for early stage or rapidly growing companies that are backed by equity capital and have built substantial enterprise value.

Venture debt can be a powerful tool for companies, at any stage of growth, to keep themselves funded to achieve their milestones. It can be used to finance the purchase of new equipment, provide liquidity when supply chain issues slow down the working capital cycle or as runway extension to follow-on equity rounds.

Unlike traditional business loans, venture debt can be flexible, and the terms are often tailored to a specific industry. For example, life sciences covenants are often aligned with company specific R&D milestones.

Venture debt will typically feature higher interest rates and shorter terms than traditional forms of debt, but also does not require positive cash flow. It does not dilute equity or give up control to new shareholders and is a valuable part of the capitalization for many growing companies.

Like any loan, venture debt comes with risks, and it’s important to understand the pros and cons of all lending solutions you may be considering. 

Venture debt for life sciences companies – what you need to know:

Here are some of the most common questions about venture debt solutions for the life sciences industry.

What kind of life sciences companies can benefit from venture debt?

Companies with multiple assets in their pipelines are some of the best suited to use venture debt. Whether these assets are part of a therapeutic platform, medical devices or a suite of diagnostic tests, they can be leveraged as collateral to provide better loan terms and higher loan commitments. Single asset companies with potential binary outcomes can expose themselves to undue risk with venture debt.

Venture debt can be particularly effective for companies who are looking to extend runway past an upcoming value inflection point and need a little bit of extra, non-dilutive capital to provide strength heading into its next financing. Venture debt can also be effective for companies that are growing well, but still need additional working capital to sustain or accelerate growth.

When is venture debt most effective for life sciences companies?

Venture debt is particularly common in the life sciences industry where revenue generation and profitability are many years away and companies are subject to significant research and development costs. It is most effective when used as a supplement to a recent equity raise; it isn’t meant to be a straight replacement for equity financing. 

What kind of collateral is used for venture debt?

Collateral used for venture debt depends in large part on the company, however nearly any owned assets can be used, including cash, accounts receivable, inventory, equipment, intellectual property and real estate.

Is venture debt the right option for my business?

This depends on the specific nature and situation of your business. A key consideration for management and investors should be working with an experienced provider that knows the nuances of your industry ensuring you get tailored options for your business.

Bridge Bank leverages experience to better serve life sciences companies:

Founded in 2001, Bridge Bank, a division of Western Alliance Bank, Member FDIC, offers a full spectrum of tailored banking solutions, backed by a specialized team who understands the needs of life sciences companies at every stage. Our Life Sciences Group is comprised of a team of bankers who have served the industry for decades gaining first-hand experience and working within innovative life sciences companies. From pre-clinical testing to product launches to public listings, our team has seen and done it all. 

Bridge Bank provides full-service banking products as well as growth and working capital lending solutions. We also provide one-on-one interaction and customer service – client relationships are at our core. We understand the unique challenges of the life sciences industry, as well as your business.

What kinds of life sciences companies does Bridge Bank service?

Bridge Bank services the entire spectrum of the life sciences industry, including biotechnology, diagnostic, medical devices, research tools and pharmaceutical companies. Our primary focus is on companies that are based or have significant operations in the U.S., companies that fall under FDA oversight or operate with significant FDA interactions and those with healthcare insurance-reimbursed products.

Why leverage Bridge Bank for venture debt?

It’s important to work with a partner that understands the nuances of the life sciences industry, and your business.  

Bridge Bank leverages deep industry knowledge, along with an intimate understanding of a company’s unique business into every customized solution. With a stable, growing deposit base, Bridge Bank is able to provide a lower cost of capital compared to alternative, non-bank lenders. In addition, our flat organization allows us to be flexible, operate quickly and enables us to build a solution that fits your needs faster and more effectively than larger banks or institutions.

Regardless of your company’s financial needs, our team is committed to developing a tailored solution that works best for your situation. Because banking and lending in this industry can be incredibly nuanced, it’s crucial to find a banking resource that can quickly and effectively structure a solution to meet your needs.

Learn more about Bridge Bank’s Life Sciences Group