Adam Torres and Jennifer Post discuss Venture Debt.
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Show Notes:
What devices are VC Lenders using to extend runway for their borrowers and/or exit deals early? In this episode, Adam Torres and Jennifer Post, Partner at Thompson Coburn LLP, explore VC lenders. Jennifer will also be participating in the Venture Debt Conference hosted by DealFlow events.
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About Jennifer Post
Jennifer is the Managing Partner of Thompson Coburn LLP’s Los Angeles Office and is a member of the firm’s Management Committee.
As a Partner in the firm’s Corporate and Securities Department, and as the Co-Chair of the firm’s Emerging Companies Group, Jennifer serves as primary outside counsel to a variety of individuals, institutions and companies in the private and public capital markets.
Jennifer represents her clients in a wide range of corporate and finance transactions, among them lending and finance, general corporate and M&A transactions, and capital raising events. She has deep expertise working with direct lenders and alternative capital providers in transactional matters and in structuring investment vehicles, joint ventures and account management arrangements. She has worked throughout her career, and on both the east and west coast, with clients in the venture capital and venture debt communities.
About Thompson Coburn LLP
Thompson Coburn is a full-service, values-driven law firm with offices strategically located in Birmingham, Chicago, Dallas, Los Angeles, New York, Southern Illinois, St. Louis and Washington, D.C. The firm represents a sophisticated client base — including Fortune 500, middle-market and emerging companies — across a range of practice areas and industry sectors.
From transportation and healthcare to agtech and haute couture, our practitioners have deep industry knowledge that informs the services we provide to clients across the globe from our national network of offices.
Full Unedited Transcript
Hey, I’d like to welcome you to another episode of Mission Matters. My name is Adam Torres, and if you’d like to apply to be a guest in the show, just head on over to mission matters.com and click on Be Our Guest to Apply. All right, so today is a very special episode. It’s part of a series that we’re doing for the deal flow event team on the upcoming Venture Debt Conference 2025 in New York’s.
City and today my guest is Jennifer Post, who’s a partner over at Thompson Colburn, LLP, and Thompson Colburn. LLP is a sponsor of the Venture Deck Conference. First off, Jennifer, welcome to the show. Thanks. Thanks for having me, Adam. Good to see you. Alright, so I’m excited to have you on. I know that you’re in my you’re in my old neck of the woods.
I used to be out in Century City as well. I’m out in, down, far, far away in a land called downtown LA right now. But welcome and love it. Loving having some century city individuals on this show. So Jennifer. How we like to normally start this, these episodes is what with what something that we call our mission matters minute.
So at Mission Matters, our aim and our goal is to amplify stories for entrepreneurs, for executives, for experts, for people that we feel need to be heard. That’s our mission. Jennifer, what mission matters to you? Well, I think probably the mission that matters to me in terms of my practice is helping creative.
Freethinking entrepreneurs exceed. Mm-hmm. You know, there are a lot of playbooks around how things are normally done, and there’s a lot of segregation around who does what type of work or what type of thinking. Mm-hmm. But I really like to work with entrepreneurs who are bending the rules a little bit, finding their own path, creating success kind of on their own terms.
Mm-hmm. I’m an entrepreneur at heart too, which is why I think I like doing that. So I’m all in to help people who are kind of reinventing the wheel. Amazing Love bringing mission-based individuals on the line to share why they do what they do, how they’re doing. It, really what we can all learn so that we grow together.
That’s what Mission Matters is all about. So great to have you on. Let’s go back in time a little bit here, Jennifer. When like working with entrepreneurs, like in this business and in this work, like, like how’d you get started? Like, where’d all that begin for you? Yeah, so I went to law school in Boston. I didn’t start my career in California.
Mm-hmm. And in Boston there were, you know, a handful of premier law firms and I went to work for one of them. And that law firm specialized in venture capital, IPOs and all types of work in sort of the private equity markets. Mm-hmm. Mostly working with companies that were growing, scaling and, and going public.
So that’s how I got started. I didn’t grow up in a family like that. We were not business oriented, et cetera, but. I really took to it when I had an opportunity to work with entrepreneurs and company owners. As a professional, and that was a good, you know, 30 or so years ago. Right? Yeah. So this has been a lifelong endeavor for me and a lifelong piece of work for me.
What I find exciting about working with folks in technology and all types of related industries is that there’re always new ideas. There’s always new ways to do things. There’s always innovation, there’s always disruption. That’s the buzzword. Mm-hmm. But there’s always something new to think about and work on.
And I did not come from a tech family or even really necessarily a business oriented family. So I found it all new and exciting and challenging and every day. Almost every day there was something new to think about and a new way to think about, you know, helping companies grow and expand. And so those years were really sort of formative.
You know, I learned how to think as a lawyer and I learned to appreciate kind of the spirit of entrepreneurship. And I did a fair amount of work, both in venture debt, even early on, and also more traditional corporate and m and a work. And I find that the venture debt work over these many years, it’s been about 30 years or more.
It’s a way to synthesize a lot of general business and corporate and lending work into one practice. Hmm. You know what, so taking that question just may be a step, a step deeper here. A lot of different ways you can work with entrepreneurs. Anything in particular that drew you to build a career in the VC space and working in that, in that side of things, a lot of different spaces you could have worked in with your skill and background.
What attracted you to that? I think, you know, a number of things. It’s very dynamic, right? Mm-hmm. You know, entrepreneurs are. Passionate. They’re excited. Yeah, they’re energized. There are people who form companies over and over again, but for the most part, there are a lot of entrepreneurs who have new ideas.
You know, new ways they wanna do things, you know, they’re not kind of hamstrung by tradition and large institutions. Yeah. And you know, sort of old ways of thinking. They’re really finding new paradigms for business, you know, for revenue, for growth and so forth. And that pushes you as a lawyer, right?
Mm-hmm. Be creative with your clients, right? Because no two business models are the same. No two companies are the same. No two entrepreneurs think exactly the same way. Mm-hmm. So it is a way to work with. Fresh ideas, newness, energy, you know, kind of all the time. And you have to bring experience and obviously the way you did things in the past or the way you’ve think done things traditionally matter.
Mm-hmm. But at the end of the day, entrepreneurs are really pushing barriers and that is really fun to be a part of as a lawyer. Hmm, amazing. Switching it up a bit here, talking about present day, let’s get into what’s going on present day, specifically with VC or VC lenders. What kind of devices or, or structures are they using to extend their runway for their borrowers present day?
Like, like with, with the current market? Like what’s going, what are you seeing? Yeah, well just, you know, one 30 seconds on venture debt 1 0 1. Right. Yeah. So the kind of the, the crux of it in terms of its purpose and its usefulness and the capital structure is to extend runway, right? Yeah. Is to give capital back businesses additional working capital so that they can achieve profitability or certain milestones or an exit mm-hmm.
Or certain, you know, kind of market penetration levels. And the, the benefit of venture debt is that it should be non-dilutive to the founders and to the folks sitting. Mm-hmm. In the capital stack already. So, venture debt is designed in a sense to, you know, propel and sustain the operations of scaling companies until a more natural exit or a more natural funding source can be located.
So what’s happening in the market is that. You know, the equity markets are slow. There are not as many exits into the public markets. Mm-hmm. The private equity markets have slowed down. There’s a bit of uncertainty. So the numbers of companies getting traditional equity financing on the private side mm-hmm.
Is slowing. And that’s both companies that have had equity and companies that would otherwise be qualifying for more equity rounds in the future. Mm-hmm. And so the venture debt players may be in already, they may have gone in at a time when these companies were scaling quickly and getting equity, or they may be in companies that have had delayed equity financings for, you know, a bunch of different reasons.
Mm-hmm. And so it’s become a challenge, I think, for a lot of venture debt lenders and companies that are struggling to raise equity and struggling to wait out the time for an exit. To keep the operations going. So a few different levers that the venture lenders are pulling if, if they have the capacity to do it.
Mm-hmm. In their portfolio. One is just extending the interest only periods, right? Yeah. Paying amortizing debt payments is a burden for companies. They need the cash flow to operate. So folks are extending out the interest only runways that is also coming with certain other features, right? Mm-hmm. Like pick or payment in kind.
Interest. There’ve been a lot of articles about this in the private credit markets. Mm-hmm. People are using pick more and more often, often documenting loans from the beginning with pick interest. Mm-hmm. And pick lets borrowers either accrue a hundred percent of the interest to their capital principle amounts accrue part of it, you know, could be like a 50 50 arrangement with the lender or accrue it on a toggle.
Right. If they have, you know, some, you know. Milestone events, they pay the interest in cash. If they don’t, then they pay the whole thing and pick. So there are a few different ways, and those are probably the two most common ways that venture lenders are extending, you know, amortization and maturity, and then also giving a borrowers a chance to accrue.
I. Or pay the interest in kind rather than lay out the cash, which obviously puts more cash back on the balance sheet and allows the borrowers to operate for longer periods of time or accelerate operations depending upon what they need to get to the exit, to get to a place where they can refinance and ultimately to get to a place where that, that can be satisfied.
Hmm. So maybe, maybe taking it one step further, like how can this be affecting maybe some of the other portfolios? Yeah. So how do you see that playing out, especially if it, if it continues longer term? Yeah, so, you know, there’s a lot of editing, I think, going on in portfolios, both on the equity side and the debt side, and it’s just reality.
I think for, you know, some venture debt lenders, you know, I’ve seen it happen across portfolios. Some with my clients and some with respect to other deals I’m in, in other capacities, and I see what the lenders are doing. Mm-hmm. A lot of folks are, you know. Using any one of those mechanisms plus, yeah. You know, converting or writing off the debt.
Right. They’ll just convert it to equity. The company does a recap and the debt says, well, we’re gonna write some of this off and just mm-hmm. Kind of see what happens on the equity side. And that obviously hurts valuations. ’cause if your debt fund, you really wanna value the portfolio bank based on the strength of your, of your debt.
ROI. Right. So if you’re carrying equity, you’re already a little outta whack. Yeah. It’s also hurting some some lenders in their portfolios because they’re, you know. They’re, they’re managing multiple funds. They’re always fundraising. They’re always in front of their LPs, and so they always want to be able to sustain the highest valuation possible for their portfolios.
Yeah. And if they’re accruing pick, there’s a question as whether or not that’s true value to the loan. Right. If they’ll ever really see that because they’re not getting current interest payments. And the other downside to not getting a full amount of current interest payments or to not getting. Exits and returns, you know, kind of naturally or per the, per the normal cadence of a debt fund is that you can’t redeploy the capital.
And recycling cash is a big part of what debt funds do. It’s normal, this is how they operate. Mm-hmm. But if you’re not getting that cash in through interest or through exits or through pay downs, then they don’t have that additional cash to deploy. Mm-hmm. So that’s part of it. And then there’s always pressure to deploy capital, right?
Yeah. So if you’re in a market where you can’t justify. A lot of new credits or a lot of, you know, substantial credits. Mm-hmm. You’ve gotta tell, tell your LPs you’re not calling capital sort of on time or as expected. And that doesn’t make LPs very happy. Right. ’cause they wanna make money by deploying capital and they’ve made certain allocations for the quarter, for the year, et cetera.
Mm-hmm. So I think it is just been a challenge for a lot of managers. To deal with valuation issues, to deal with managing LP expectations and ultimately to deal with write-offs or other, you know, sort of editing activities inside their portfolio. And like all managers on the equity side, as well as on the debt side, sometimes you have to figure out where it pays to.
To walk away. Mm-hmm. Because the amount of time or effort or kind of ancillary costs to, you know, manage, you know, underperformers just may not be worth it if you have other things in the portfolio you can focus on. Hmm. And speaking of challenges, I think having a conversation like this, we definitely need to bring up maybe challenged borrowers.
And, and in that piece of it, in respect to VC lenders, what should they be aware of when it comes to managing exits for, let’s say, challenged borrowers? Yeah. I think there are a lot of issues. Some of them are sort of in the bucket of traditional matters, and some are in the, the more, the more business challenge matters.
Mm-hmm. You know, on the traditional side, the issues list is somewhat. Familiar, right? Like what do you do and how do your documents look in terms of a bankruptcy? Mm-hmm. Who do you compete with in a bankruptcy If there are other lenders who are gonna offer financing, you know, what is the debtor strategy in a bankruptcy?
Are there assets there you can’t foreclose on after the filing is made? So having an understanding of all. The bankruptcy, we have a mechanism called the assignment for benefit of creditors, A, B, C. Mm-hmm. Which is like an out out of court bankruptcy. Other sorts of insolvency laws, like are you ready and do you know what your strategy is versus your borrower strategy?
In looking at one of those outcomes and those outcomes, sometimes they’re favorable for bother borrowers and sometimes they’re more favorable for lenders. Mm-hmm. Again, the question is where is this bankruptcy gonna occur and what is the. The upshot gonna be, and by the way, a lot of deals across border, so sometimes looking at these insolvency matters and other jurisdictions mm-hmm.
Is something that’s gonna rise up the list more quickly. On the less traditional side, maybe even sort of the less technically legal side, which is what I find interesting is that if you are a lender who has in good faith, worked with a borrower, and there’s been maybe interim equity or maybe you’ve mm-hmm.
Extended loans on a kind of an interim basis to help get to an exit. The real question is, you know, will the board of directors and the shareholders existing in the capital stack? Mm-hmm. A approve an exit that makes you the lender whole, but not necessarily all the equity holders. Yeah. Right. So there comes the tension, right?
What does the lender need to get out? What does the capital stack want? Right? Right. Because people wanna get paid all the way down to the bottom of the waterfall. Is that a realistic exit? Is it an exit that can be done in a timeframe that makes sense? A company will still be operating? Hmm. And also, you know, it’s people act out of self-interest and they should, right.
Someone’s, mm-hmm. A venture capital investor, they put a lot of money in the company. They wanna, they wanna get a return, right, of course. But they can’t sell the company without the lender’s consent. So there’s a lot of negotiation that happens in later stage companies that are distressed, that need an exit.
Mm-hmm. That can have an exit. And the question is, who’s really going to approve that exit? You know, who’s gonna stand in the way? You know who’s gonna participate, who’s gonna be difficult? And that all drives to, you know, who’s on your board? Yeah. Who’s in your capital stack? Are they sophisticated people?
Are they family members? Mm-hmm. You know, are they just, you know, high net worth people who thought it would be fun to invest? Mm-hmm. I mean, these things matter. Yeah. And then on the flip side, you could be dealing with very large equity funds. Right. Very large venture capital funds who. We’re talking about it earlier who might have just edited this particular position, like it’s out of their portfolio.
Mm-hmm. Like, they just, they just are not gonna spend time on it. A lot of entrepreneurs wanna work with big, big funds, but big, big funds have a way of not caring. I. You know, unless it’s gonna push the needle for them. So it’s a very interesting conversation. It’s can be stressful of course, you know, for all size.
But it’s a very interesting conversation when you have a nice, you know, amount of debt at the top of the stack. Either because it’s accumulated over time or there’s been pick or all of the above. And there’s an exit opportunity and the investors sitting below the debt are just not happy with it. Or they’re, you know, frankly greedy or they just feel that there’s a better return or, you know, they, what they have reputations in the market.
So it’s a very interesting conversation when there’s an exit. That could, could work for the lenders and could work for some of the equity, but doesn’t really work for all the equity. And then how do you have that conversation? Because ultimately the board and the equity people can determine whether or not to go into a sale, right?
Mm-hmm. The lenders can push you into a sale, but you know there’s always a slightly better outcome when it’s voluntary. So a lot of conversations there. It’s very, very interesting place to, to be a part of it. And it really. Goes to negotiating strength and negotiating sort of sensibility of the lenders, right?
If you pound your fist, you don’t get stuff, but if you pound your fist and offer something, you can get a, you can get a pretty good outcome. Amazing. I understand that. Part of, I know Thompson Colburn is supporting the the venture debt conference, and there’s gonna be a, correct me if I’m off on this, there’s gonna be a panel, right, a panel discussion and what’s.
That gonna be a high level, keeping a high level. We don’t wanna spoiler that for the people that are attending, but like, tell, tell me a little bit about that. Yeah, so, you know, there’re gonna be panel presentations throughout the day, but we’re hosting a panel about sort of the timing of venture debt and kind of the leverage points of negotiating venture debt at different points in the life lifecycle of a scaling company.
So what does it mean, and why would you and do your debt deal, like in connection with an equity round? Hmm. After an equity round? Before an equity round. Yeah. And then also, how does, how does that look and how does it play? And what, what are the dynamics if you’re doing venture debt to support acquisitions or, you know, to support a specific acquisition for a company?
So we’re looking at leverage points between borrowers and lenders mm-hmm. At different kind of capital moments in the company’s life. And then, you know, leverage points at a time of acquisition. And what do the lenders require for acquisition? And again, you know, venture lenders, unlike banks, tend to be less formulaic.
I wouldn’t say that they’re not formulaic, but way less formulaic. And so there’s a lot of dynamism and discussion. Mm-hmm. When you’re raising venture debt. And so the, we have three folks on the panel, very experienced people in debt and equity. We’re gonna be talking about, you know, what it means to raise venture debt at different stages of growth in terms of the capital raising.
Gonna be a great panel. Gonna be a great panel. So you gotta go. If you’re watching this venture debt conference, put it in, go. Amazing. And I don’t, I don’t know if I’m going in person yet, but I’m gonna definitely be watching some of the recordings and everything else. ’cause a big fan of the, the conferences, really all of ’em that deal flow events puts on.
But venture debt one’s gonna be an amazing one as well. That being said, Jennifer, I mean. First off, this has been a great discussion. I learned a lot. I’m up to date on the trends and what’s really going on in the VC space. What’s next? I mean, what’s next for you? What’s next for your career? Well, you know, I love what I do.
I gotta keep working. Yeah. Debt clients and folks that, you know, fund the venture debt, you know, clients and all kinds of asset managers out there that’re looking to get into venture debt. It’s a pretty dynamic time because the markets are, you know, unpredictable, which always leaves some room to be creative.
So I’m gonna keep doing that. Mm-hmm. And. My shortlist is going to the US Open in New York Ooh. In September. I’m a, I’m a big tennis fan, so I just was out in Indian Wells and hope to get out to New York in September, so that’s what I’m talking about. It’s not all work. There’s some play out there.
That’s what I’m talking about, Jennifer, for, for sure. Last thing, if somebody wants to continue the conversation and to learn more about either your practice or Thompson Colburn in general, how do they do that? Yeah, that’s easy. So you can go to our website, thompson coburn.com and you can look me up and send me an email, or feel free to connect with me on LinkedIn.
I, I check that really frequently. I will be happy to talk about all things entrepreneurship, venture debt, corporate law, m and a, anything that touches growth companies. That’s what I’m interested in. Perfect. And for everybody watching, just so you know, we’ll definitely put the links in the show notes so you can just click on them and head right on over.
And speaking of the audience, if this is your first time with Mission Matters and you haven’t done it yet, hit that subscribe or follow button. This is a daily show. Each and every day we’re bringing you new content, new ideas, and hopefully new inspiration to help you along the way in your journey as well.
So again, hit that subscribe or follow button. And Jennifer, thanks again for coming on the show. Yeah, my pleasure. Good to see you, Adam.
Let’s chat.