Building Bridges

Building Bridges

Discover how capital call bridge loans are helping VC’s gain the financial flexibility to cut to the chase faster

Capital call bridge financing is a rather new trend for VC’s and private equity funds but when used under the right circumstances they offer their funds greater flexibility and firepower to seamlessly seize on market opportunities without skipping a beat.

Let’s review some of the main benefits of bridge loans

 

1. Reduced admin costs

By reducing the frequency of capital calls from limited partners, fund managers are able to significantly reduce the associated admin burden.

 

2. Enhanced IRR (internal rate of return)

Utilizing a bridging facility ultimately provides the potential of better performance.

 

3. Immediate access to capital

The key driver for using a bridge facility is liquidity management - it provides instantaneous capital that bypasses the standard 10-day timeline for drawing capital. 
It’s much simpler to request funds from a single entity as opposed to recalling funds from multiple limited partners.

 

4. Building multiple acquisitions

If two deals are closing at around the same time, a bridge facility helps avoid the need to call investors in short succession. This reduces the discomfort of having to go back to investors and the burden and costs to the fund associated with processing a withdrawal.

When a fund manager uses a capital call bridge facility, they can effectively delay drawing cash from the investors and in that way improve the IRR.

One such example is the recent collaboration between Discount Tech and Israel Growth Partners (IGP), an Israeli-Based technology growth venture capital, focused on both global companies at expansion phase, and hi-tech companies at growth phase.

According to Uri Erde, General Partner at IGP, the collaboration between DiscountTech and IGP signified a new era of possibilities. “Bridge financing greatly reduced the administrative hassle and gave us the agility to close some major deals without having to go through the waiting period that can be strenuous both for us and for the startups. There is definitely a need in the market for this type of partnership, and it’s a win-win-win for all sides.”

As more VC’s will test the waters of bridge loans, it won’t be long for this to become the industry standard, especially as the need for speed and flexibility are only growing in the agile and hyper-competitive startup ecosystem