black baker tilly logo

New forms of alternative financing are emerging: venture debt, media for equity or convertible notes.

We are together in each step

With the boom of entrepreneurs that are emerging in our country and the refusal of banks to give credit to such startups, new forms of financing are being born and we have been gradually adopting alternative financing that were already implemented in other countries in Europe and America, but had not yet arrived here with force. Among these forms of financing we find Media For Equity, convertible notes or Venture Debt.

nuevas formas de financiacion alternativa

Media For Equity

Media For Equity, as we mentioned in a previous post, is a model that emerged in the 90s in Europe and has been widely used in Germany and the UK, mainly with television companies, and has recently arrived in our country.

In Media for Equity, media groups obtain an equity stake in exchange for providing advertising to the company, usually at rates at the best market conditions.

This model is expanding so much that in some countries there are already companies that manage these investments acting as VCs, such as  5M Ventures en Francia o German Media Pool en Alemania.

This financing formula is only useful for companies whose client is the end consumer and which have a mass audience, not a niche one.

In Spain, Atresmedia and Mediaset are the main media using this model, and we have already seen success stories. Mediaset, for example, has earned €5.5M with the Red Fridge.

"More and more media outlets are joining this modality". This week we learned that the Godó Group, a publishing group of the vanguard in Barcelona, had invested in Heygo, an app to offer or search for services between individuals, in a geolocated way, so that citizens can earn extra money by offering their skills or find someone nearby who can help them" says Diego Gutierrez from Abra-Invest.

Venture Debt

Venture debt, or convertible equity loans, is somewhere between high-risk investments and traditional loans.

Venture Debt does not require any bank guarantee from the startups, nor other conditions that financial institutions ask for and that are difficult for an entrepreneur to meet.

Unlike business angels and venture capital funds, these firms do not participate in the financing of the company if there is not already a major investor of one of the two previous types. They only take a minority stake, since their objective is not to assume the main risk of capitalization of the company.

In Spain Inveready is the major reference in Venture Debt operations, an example of this type of operation is Inveready's participation in Bilua,  ecommerce company specializing in products for the whole family.

To access a loan of this type, the company must have an adequate level of risk, it must be generating cash flows or be awaiting a liquidity event, such as the closing of a contract or the sale of the company. "It can't be a solution for today that becomes a problem tomorrow," warns the partner at Inveready.

Convertible notes

In this model of new forms of financing, an investor provides capital to the startup initially in the form of a loan, but the objective of the loan is not to be repaid but to be fully converted into equity at a later date.

Through convertible notes, the investor delivers the money without the need for both parties to discuss or negotiate at that moment what the valuation of the startup is, since the conversion into capital is deferred to a later time, which will normally coincide with the next round of investment.

Thus, when the next round takes place, the investment will be converted into equity on the basis of the valuation negotiated in the second round, to which a discount will normally be applied, and a cap may also be established.

La Communitat, for example, carried out its first round of financing in 2015, after capitalizing the convertible notes that, during the second half of 2014, were subscribed by different Investment Funds and Business Angels.

The funds raised through this round of investment enabled the company to The Community to launch Mediazines, its new interactive magazine kiosk, in January 2015.

If you are looking for financing, contact us. Abra-Invest has an expert team in alternative financing at your disposal. Call + 34 946424142 or fill out the contact form.

Other posts that may interest you

¿Qué es el media for equity?

Startups get funding through Crowd equity