Can you expand on this a little bit? What does a company like Foursquare post as collateral on a $10mm+ loan and what are typical interest rates? Will Foursquare be expected to pay back the entire loan in cash?
Never having done a deal like this myself (either as an investor or an entrepreneur) this is just a guess, but I'd say that there is no "traditional" collateral (i.e. hard assets and / or cash flow) like when a more established company raises debt. Rather, the debt investors are made comfortable by the fact that some of the top VCs (USV, Spark, a16z, etc.) are willing to put additional equity into a company they are all already heavily invested in. I assume that Foursquare is expected to pay back the entire loan in cash. I also assume that Silver Lake has some covenants which either call for payback or allow them to take control if certain growth rates and revenue figures are not reached soon. This is a complete guess but I'd say in the range of 10-20% annual interest.
10-20%? That's way out of line for venture debt. The upside in venture debt is usually from warrants, not interest rates, though Silver Lake is different / closer to PE.
It's hard to tell without knowing the tenor, amort schedule, and warrants. If the structure is similar to a junk bond the rate is going to be much higher than if it's more like a term loan. Would be very interested in hearing rates and structure of similar deals ppl know of
If they're going to pay back in cash, I don't understand how they do that at $2MM/year in revenue. Essentially all of their revenue would go to payments on the debt. I suppose they could be planning to IPO in which case they could use some of the cash raised in the IPO to pay back the loan, but it isn't clear who would be interested in buying Foursquare, especially after the Facebook IPO.
From what I understand, it wasn't all pure venture debt, but a split between convertible debt from insiders and venture debt from silver lake. Given silver lake's place in the capital structure and likely covenants, if foursquare is still burning a ton of money with minimal revenue in 6-12 months they probably can be paid with the new money from USV / Spark / a16z.
And in order for this deal to work out for anyone, the $2MM/year figure is going to have to be much larger. With 6.0 you can already see Twitter and Facebook esque promoted ads, which are going to make that figure grow a fair amount in my opinion.
