Canada’s Vistara Capital Partners has raised $40 million of a planned $100 million fund that will provide debt financing to mid-to-later stage startups in North America.
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The Vancouver, British Columbia,-based firm’s first two funds raised a combined $70 million and made loans to 10 companies, according to Founder and Managing Partner Randy Garg.
“There is a rapidly increasing number of mid-to-later stage tech companies looking for additional forms of capital to fuel growth beyond traditional sources,” said Garg. “Since inception, Vistara has worked with both founder-owned and venture-backed tech companies across North America to help them achieve their growth objectives. With this fund, we are aiming to further grow our capabilities.”
Vistara plans to invest between $5 million and $15 million per company in senior or subordinated debt 1. Garg estimates the fund will provide loans to about 10 companies out of its latest fund.
Its model is fairly straightforward: Vistara provides a loan at a term of three to five years. The company pays back interest only throughout the duration of the loan and then repays the loan amount in full by the end of the term. Typically, Vistara takes some warrants in the company, which Garg said is “far less dilutive” than taking equity.
The “highly flexible” form of financing is appealing to companies who don’t want to give up equity, Garg said. Vistara—which is Sanskrit for expansion—fills “a big gap” in capital structure between banks and equity financing for companies, according to Garg.
“Companies don’t have to give up further control, reset their valuation or dilute founders’ and existing shareholders’ equity stakes,” he added. “It can help companies that say, are between Series B and Series C rounds. Our capital can help them extend their runway during important growth phases. And, we actually find it enables greater access to capital from banks.”
Vistara Capital Partner’s LPs include a number of prominent family offices, foundations, and over two dozen current or former technology company executives. The previous two funds saw a number of successful exits, zero loan losses, and strong consistent returns for investors, according to Vistara.
For example, in 2016, Vistara provided peer-to-peer ridesharing company Getaround with a $7 million interest-only term loan which allowed the San Francisco-based company to meet important milestones ahead of its $45 million Series C financing round, according to Garg. Vistara’s initial note was refinanced as part of Getaround’s most recent $300 million Series D round led by SoftBank, and Vistara continues to serve as a partner to the company.
“When Getaround was looking to extend our runway and execute several key initiatives prior to our next equity raise, Vistara stepped up,” said Adam Kosmicki, CFO of Getaround, in a written statement. “Vistara put together a financing solution tailored to our needs and moved quickly to close. This was vital to a company like ours, working in a fast-moving sector. We were able to get back to running the business and prioritizing the factors most important to Getaround’s long-term growth.”
As part of the new fund, Vistara also will be opening a new Toronto office. Historically, venture debt has been more popular in the U.S. than in Canada, Garg noted.
“We would love to place at least half of the new US$100M fund in Canada to help mid to later stage Canadian tech companies further scale and become true champions as opposed to stalling out or selling too early,” he said.
Illustration: Li-Anne Dias
Different classes of debt that are repaid at different times, senior coming before subordinated if the borrowing company fails.↩