Last week's news that Facebook Inc. had borrowed $100 million from TriplePoint Capital sparked speculation that the social networking site had turned to lenders after being turned away by venture capitalists no longer willing to bet on the company's sky-high valuation.
Not so, says TriplePoint CEO Jim Labe (pictured), who notes that TriplePoint had previously issued $30 million in debt to Facebook and has helped finance a range of companies, from Netflix Inc. [NFLX] to HotMail before it was acquired by Microsoft Corp. [MSFT] and YouTube before it was bought by Google Inc. [GOOG]. TriplePoint, which routinely advises companies of all levels of development but which specializes in early-stage funding, says it has recently seen an increase in demand for debt financing, particularly in the cleantech and energy sectors.
"Our pipeline is very very large and growing," Labe says. "Definitely, demand for equity is more competitive than ever.
"Some material suggests we provide debt as a substitute for equity, but the debt we provide enhances the equity that these companies raise," he adds. "Any company that just relies on equity is making a mistake."
While companies like Facebook may have no trouble raising venture funds, turning to debt for at least some of their capital requirements enables them to minimize dilution, says TriplePoint, which advises early-stage companies to build their capital by layering debt in with venture money. At the same time, TriplePoint says that the way it structures its loans, with warrants for very early-stage companies and fees in addition to standard interest, enables it to see returns upwards of 30%, with minimal risk since it can collect its fees and interest "even if there is never a liquidity event." -- Andrea Orr
See May 12 story on TriplePoint's loan to Facebook from TheDeal.com
See October 2007 story on Microsoft's investment in Facebook from TheDeal.com
See February 2006 story on TriplePoint from TheDeal.com
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