An Exclusive Interview with Stéphanie Heller
Stéphanie Heller discusses her innovative approach to growth debt financing, leading to over €1 billion in loans for European startups.
In the ever-evolving landscape of technology and finance, few individuals have made as significant an impact as Stéphanie Heller. As a managing partner and co-founder of Bootstrap Europe, Stéphanie has been instrumental in reshaping the way fast-growing technology companies secure funding. Her visionary approach to growth debt financing has not only empowered over 250 companies across Europe but has also led to the financing of more than €1 billion in loans. This remarkable achievement is just one of the many reasons we are proud to feature Stéphanie as the cover star of this month’s Entrepreneur Prime magazine.
Stéphanie’s journey is a testament to her unwavering commitment to innovation and entrepreneurship. Before co-founding Bootstrap Europe, she played a pivotal role in founding and building several successful technology and financial companies in Zurich and London, including the award-winning fintech start-up Fractal Labs. Her extensive experience as a founder and board member has equipped her with a unique perspective, allowing her to work closely with Bootstrap Europe’s portfolio founders in a pragmatic and impactful way.
Driven by a belief that more capital should be directed toward entrepreneurs and innovation, Stéphanie founded The Real Economy Effect (TREE) in 2012. TREE managed a portfolio of approximately $350 million in growth equity and technology investments, further solidifying her reputation as a trailblazer in the financial sector. Her career began in the London-based M&A team of Deutsche Bank, where she specialized in the Industrials Sector, and she later honed her expertise in Paris with French investment bank Calyon.
Stéphanie’s success is not only measured by the numbers but also by her dedication to fostering long-term partnerships with entrepreneurs and venture capitalists. Her ability to navigate the complexities of the European growth debt market, coupled with her fluency in French, English, and German, has positioned her as a leading figure in the industry. As we delve into her insights and experiences in this exclusive interview, we celebrate Stéphanie Heller’s remarkable achievements and her unwavering commitment to driving innovation and growth in the technology sector.
What were some of the biggest challenges you faced when transitioning into the growth debt sector?
Establishing the Bootstrap franchise in the growth debt sector presented several challenges. In the early days, one of the primary hurdles was the need to educate startup CEOs and their boards about the intricacies of debt financing compared to equity investments. Growth debt requires a keen understanding of financial structuring and risk assessment for the lender, but also for the borrowers as they have to match the timing and quantum of the loans with their own cash flows and the complex dynamics of their business, which most of the time are not yet profitable but have high growth potential. Sometimes, it might not be the best moment to raise debt in the startup trajectory and it is better to delay by 6 months or until certain milestones or unit economics are reached.
Another challenge was establishing trust and credibility within the startup ecosystem. Entrepreneurs often associate funding with equity investors who take ownership stakes and board seats. After all, growth lenders are partners to both the founders and their investors so we need to be able to put ourselves in their shoes and ensure we are the best support for the long term. We tend to invest multiple times in our most successful companies so we want founders and VCs to think about our relationship as a long term partnership. Therefore, building a network of partners and establishing relationships with entrepreneurs, venture capitalists, and other stakeholders was essential for successful deal flow and due diligence.
Can you explain the different types of growth loan structures that Bootstrap Europe offers, and how they are tailored to meet the needs of different startups?
There is increasingly more diversity in the venture lending offering than there is typically in equity.
Depending on the stage of development and rationale for the debt funding, European technology companies are now able to access many more varied types of lending.
– The primary and most widely available loan offering is the term loan. These have fixed repayment schedules for 3 to 4 years, and amortise over the term of the loan. Term loans provide the certainty of fixed payments, helping startups plan their finances with confidence.
They come with equity kickers in the form of warrants which are an important way to ensure your lender is aligned with your long term value creation objective. Term loans are suitable for startups, past the go-to-market stage, with a clear understanding of their unit economics and the milestones the loan will help them achieve, who have received funding from quality VCs.
– Revenue-Based Financing: This structure is ideal for startups with recurring revenue streams. Repayments are tied to a percentage of monthly revenues, which provides flexibility for companies with fluctuating cash flows. It aligns the lender’s interests with the company’s performance, reducing the financial burden on the company during slower months.
– Bullet Loans: These loans have a single repayment at the end of the term, which can be advantageous for startups that need immediate capital but prefer to defer repayments until they achieve specific milestones or funding rounds. They are rarer and often available from development institutions at subsidized rates.
– Convertible Loans: this last category should really be classified as equity as these loans offer the option to convert debt into equity at a later stage, often during a subsequent funding round. This structure is beneficial for startups that want to anticipate a funding round with existing investors or trusted investors with a longer term view of becoming shareholders.
Can you elaborate on your investment philosophy and the criteria you look for when evaluating potential companies for growth loans?
Our investment philosophy at Bootstrap Europe revolves around supporting innovative startups in technology and life sciences with differentiated technology that creates a significant moat and have the potential for 10x returns. We tend not to invest in business model innovation and rather for “nerdy” investments in deeptech, cleantech, fintech, life sciences, energy transition, etc.
Strong fundamentals are a prerequisite, such as a clear value proposition, a scalable business model, and a committed management team.
Key criteria we evaluate include:
– Market Opportunity: We assess the size and growth potential of the market the startup is targeting. A large, expanding market indicates greater opportunities for growth and revenue generation.
– Revenue Streams: We look for startups with proven revenue streams or a clear path to generating consistent revenue. This demonstrates the company’s ability to service debt repayments. We may also invest in pre-revenue startups where there is a considerable asset such as patent portfolios, hardware assets, media assets, etc
– Management Team: The experience, commitment, and track record of the founding team are critical. A strong team can navigate challenges and execute the company’s growth strategy effectively.
– Financial Health: We analyze the company’s financial statements, cash flow projections, and burn rate to ensure they have a sound financial foundation and can manage debt responsibly.
– Product/Service Differentiation: Companies with unique, innovative products or services that solve significant problems in their target markets are more likely to succeed and grow.
– Customer Traction: Evidence of a growing customer base, high customer retention, and positive feedback are indicators of product-market fit and the potential for scalability.
– Impact: all our investments target at least 2 of the UN Sustainable Development Goals. We find that the entrepreneurs we finance generally have the ambition to tackle our hardest environmental and societal challenges.
Our goal is to partner with startups that have the potential for long-term success and to provide them with the financial resources they need to achieve their growth objectives.
What are some common exit strategies for growth debt investments, and how do they differ from those in venture capital?
Growth debt exit strategies typically revolve around the repayment of the loan principal and interest, rather than equity liquidity events. Common exit strategies include:
– Scheduled Repayments: The most straightforward exit strategy is the full repayment of the loan according to the agreed-upon schedule, including any interest and fees.
– Refinancing: Startups may choose to refinance their debt with new loans on better terms, especially as they grow and their credit profile improves. This provides an exit for the initial lender while the startup continues to leverage debt financing.
– Acquisition: In the event of a startup acquisition, the acquiring company often repays the outstanding debt as part of the transaction. This provides a clean exit for the lender.
– IPO: Although less common for debt, if a startup goes public, the proceeds from the IPO can be used to repay outstanding debt.
These strategies differ from venture capital exits, which primarily focus on equity liquidity events such as IPOs, acquisitions, or secondary market sales. Venture capitalists seek significant equity appreciation, whereas growth debt investors focus on the reliable repayment of principal and interest, with some equity upside.
What are some unique opportunities and challenges you see in the European growth debt market?
The European growth debt market presents unique opportunities and challenges:
Opportunities:
– Growing Ecosystem: Europe’s startup ecosystem is rapidly maturing, with increasing numbers of high-growth startups seeking alternative financing options. This creates a fertile ground for growth debt providers.
– Diverse Markets: Europe’s diverse markets offer opportunities to invest in a wide range of industries and sectors. This diversity can help mitigate risks and provide exposure to various innovative technologies and business models.
– Supportive Regulatory Environment: Many European countries are fostering innovation through supportive policies and incentives for startups, creating a favorable environment for growth debt investments.
Challenges:
– Regulatory Complexity: Navigating the regulatory landscape across multiple countries can be complex and time-consuming. Each country has its own legal and financial regulations that need to be carefully managed.
– Market Fragmentation: Europe’s market fragmentation means that startups may face different challenges and opportunities in each country. This requires a nuanced approach to investment and support.
– Cultural Differences: Understanding and bridging cultural differences in business practices and communication styles is essential for building successful relationships and partnerships across Europe.
By leveraging local expertise and fostering strong relationships, we can navigate these challenges and capitalize on the opportunities in the European growth debt market.
What advice would you give to entrepreneurs who are looking to secure growth debt funding and grow their startups?
For entrepreneurs seeking growth debt funding, here are some key pieces of advice:
– Understand Your Needs: Clearly define why you need growth debt and how it fits into your overall growth strategy. Growth debt is best suited for specific use cases, such as accelerating growth to specific milestones, extending the runway between equity rounds or to better negotiate a fundraising round or an exit, reducing dilution from an equity round, M&A financing, , financing working capital or capex, or.
– Prepare Thoroughly: Ensure your financials are in order and have a robust business plan that demonstrates your ability to generate revenue and manage debt repayments. Transparency and preparation build lender confidence.
– Choose the Right Partner: Look for growth debt providers who understand your industry and can offer more than just capital. The right partner will provide valuable insights, flexibility, and support to help you grow your business.
– Negotiate Terms: Understand the terms of the debt agreement, including interest rates, covenants, and repayment schedules. Negotiate terms that align with your cash flow and growth projections to avoid undue financial strain.
– Maintain Strong Communication: Keep open lines of communication with your lender. Regular updates on your progress, challenges, and milestones help build a strong relationship and ensure that any issues can be addressed proactively.
– Plan for Repayment: Have a clear plan for how you will repay the debt. This might involve aligning your repayment schedule with anticipated revenue streams or planning for future funding rounds to refinance the debt.
Securing growth debt can be a powerful tool for growth when used strategically. By understanding the landscape and preparing effectively, entrepreneurs can leverage growth debt to achieve their business goals while preserving equity.
