Venture Debt: Device Financing Lifeline or Anchor?

In the fall of 2004, veteran device executive Allan May, then President and CEO of peripheral device start-up Vascular Architects Inc. (VA), was chairing a board meeting discussing possible financing options for the struggling company when two of his venture investors suggested that VA consider using venture debt. May was no stranger to a variety of financing options—he had been CEO or chairman of more than a half-dozen medical device start-ups. But by his own admission, he wasn’t familiar with venture debt, nor were several of the company’s other investors. Based on his investors’ suggestion, May contacted Maurice Werdegar, a partner with San Jose-based Western Technology Investment (WTI), a pioneer in providing venture debt, particularly to life science companies, and the two struck a deal that enabled May to finance the company toward a target of profitability. Things did not go as planned, however, and the two ultimately worked closely together to keep the company afloat long enough to negotiate a successful trade sale of the failing company’s assets—avoiding what otherwise looked to be likely bankruptcy.

Vascular Architects represents an extreme example of how young companies have turned to venture debt to help either stay afloat—in the case of VA--or extend their current funding to achieve...