Early stage investing recently took a new turn when Charles River Ventures announced it would be issuing bridge loans for seed-stage and startup companies. Entrepreneurs can now apply to CRV for unsecured small business loans of up to $250,000.
Although CRV is one of the oldest early stage venture funds in the country, rolling out a loan program for seed-stage companies breaks with several traditions: Seed-stage investing has long been the realm of angel investors, and loans the dominion of banks. Mixing the two within a venture fund breaks new ground.
The move is a response to a growing need in the market, according to George Zachary, general partner for CRV in Menlo Park, California. The loans are meant for internet-based companies that need just enough capital to rent space on servers, write some software and host a website. "There's more capital available, and [today's] companies need less money to get to market," he says.
Zachary cites the success of a CRV-funded internet browser company called Maxthon.com as a prime example. "[It] has grown from zero to 10 million monthly users on average," he says. "With just seven employees, [it has] already had 72 million downloads and [is] already profitable. [It] was started for less than $200,000."
"We realized that more companies die from indigestion than from lack of food," says Zachary, referring to dotcoms taking large chunks of capital, then choking on the execution of their business plan. "We see a high correlation between entrepreneurs that are scrappy and [ones that are] successful."
CRV's bridge loans accrue interest at 6 percent but are not repaid until the company holds a larger round of equity fundraising or is sold.