Private Equity and Venture Financing : Astropep Case
Question 1)
From the perspective of the venture lending fund, is Astropep an attractive target for a venture loan?
From the perspective of the venture lender, the key is to determine if Astropep is likely to “survive” for the duration of the loan, and to ensure that the deal pricing and collateral fairly compensates / protects for the level of credit risk. Despite the fact that Astropep is still pre-revenue, it is an attractive target for a venture loan.

Company History and Market Environment
Firstly, the market environment and competitive landscape appear to be in Astropep’s favour. The global immunotherapy market is expanding and expected to continue to grow at a healthy rate, in line with population growth and the increasing occurrence of allergies. A comparison shows that Astropep has several key advantages on its closest competitors (e.g. ease of use, effectiveness, side effects).

The company itself also has an experienced management team with deep domain experience and expertise. Perhaps more importantly, the team also has the support of strong backers – “Investors with deep pockets and well-networked”, who believe in the value of the underlying technology. This implies they are unlikely to let the company fail in the short-term, even if the upcoming phase of trials do not succeed. The venture lender is also able to “piggy back” on the due diligence that was presumably done by the VCs.

Fundamental Risk of Astropep’s business
The performance of a pharmaceutical manufacturer and distributor is linked to the success of R&D and drug trials, the outcome of which can be difficult to predict. Competitors are also continuously developing and launching new products. However, Astropep has performed well and shown momentum over the last few years, despite some of the drug trials not going to plan. The management has a clear strategy and exit plan, and a precise objective for taking the loan (to provide a bridge and flexibility for R&D spending prior to the next equity round).

Financial Risk Underlying the Proposed Venture Loan
Astropep’s projected future cashflows are highly dependent on potential licensing agreements and approval of the EU research grant. There is also a risk that the trials may not show satisfactory results, in which case product launches could be delayed. Both these factors could impact on the ability to service debt, but are mitigated by:

Strong IP in existing products (which the venture lender will have a senior charge over);
Astropep is not using debt as a last resort for financing – It has a decent cash runway of approximately 1.5 years, and is expecting further equity injections

(iii)
Even

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