We recently announced a €27m commitment to Bootstrap Europe’s Fund II.
Bootstrap Europe II invests venture debt with a focus on high growth technology companies. The fund aims to provide successful entrepreneurs and their investors with less dilutive funding to help them grow quickly, and scale without giving up significant equity stakes in their business.
We caught up with Stephanie Heller, Managing Partner and Founder of Bootstrap Europe about debt finance, spotting potential and what the VC industry needs to do to encourage investment in female founders.
1. What are the benefits of debt finance rather than equity for growth businesses?
The main benefits revolve around accelerating growth while mitigating dilution for founders and existing shareholders. Some founders and investors use our financing tool in sophisticated ways to reach specific valuation milestones, finance equipment and acquisitions, avoid valuation events.
Behind the concept of dilution are important issues for entrepreneurs: it is about retaining control (no additional board members, retaining voting shares) and maximising economic returns at exit.
2. When would technology debt be a suitable option for a company?
The answer is rarely. Rarely should a business owner or board take the decision to use debt. The only moment it makes sense is when the company is at an inflection point in its valuation and a priced round creates additional tension, dilution and complexity that the debt can solve.
3. Bootstrap has backed some of the fastest growing businesses in the UK. How do you spot potential?
We search for a combination of a unique entrepreneurial story, outstanding people and a game-changing technology. On the credit side, we adhere to a strict underwriting methodology, with a number of different criteria, refined and evolved over the years. As a result, we tend to do fewer transactions but where we believe the company can have a positive impact.
4. The British Business Bank published research earlier this year revealing that female founders get less than 1p in every £1 of UK venture capital invested. What advice would you give to female entrepreneurs looking for finance to grow their business?
Female entrepreneurs are fantastic at building businesses. The question should rather be what advice would we give to financiers to increase financing to female founders. The answer is to look at the investment case on its own merits rather than gender.
A great example is the British Business Investments approach. Bootstrap received a commitment from BBI, the commercial arm of the British Business Bank. BBI believed in our investment case regardless of our gender or of ESG targets and this is because BBI is truly open to recognise great teams and great investments.
5. In US venture capital, for every $10 raised in equity, $1.5 is raised in non-dilutive financing. In Europe, non-dilutive finance is substantially less common. Why is this? And how can this be improved?
The legal uniformity and maturity of the US market are the reasons. The technology ecosystem is deeper in terms of number of companies to finance. The technology debt supply as well is more varied with funds and banks providing a variety of structures for different stages and sectors in the technology space. Some lenders might be sector specific or stage specific.
In Europe, lenders are generalists and the biggest hurdle is the different legal jurisdictions which create the complexity for a lender to operate across various countries.