Supporting early-stage growth
Arena’s capabilities allow for being equally comfortable lending to established businesses and to those in the earlier stages of their evolution. For example, Arena has provided financing to dozens of companies funded by venture capital firms. In the process, we have established ongoing working relationships with a number of these VC firms that allow our complementary skills to bring value to both sides of these partnerships and to the ventures funded.
Many of these startup or near-startup companies lack financing options aside from those that would be unacceptably dilutive to the parties involved or that would force the company to mark to market at an inopportune time. While these companies are typically growing quickly, they seldom have positive earnings and are often very small, so they do not fall onto most financiers’ radar, and traditional approaches to underwriting are often insufficient.
However, many of these companies are unprofitable only because of their investments in growing their businesses. At their core is sometimes a highly cash-flow-generative business with a sticky customer base—where if one had to step in and take over, adjustments could be made to harvest those underlying cash flows.
At the right loan amount relative to the cash flow, and cross-collateralized across different companies backed by the same VC firm, these situations can warrant the much-needed capital for these companies while offering (if properly constructed) the requisite protection for Arena’s capital.
In a recent example, a company focused on skin-health products and dermatological practices (incorporating spa and educational services) was looking to fund the acquisition of three commercially marketed prescription dermatological treatments to expand its portfolio offering, and the company needed working capital as well. Although not brand new (about seven years old), this company had suffered insurance payor-related setbacks related to several previously licensed dermatological products that had led it to give up the licenses, greatly cut its sales staff, and essentially resume the profile of a startup with a promising but very small product portfolio.
At the same time, the founders of this company had a long and successful history of acquiring and marketing prescription dermatology products in the US—one of the aspects that, despite the complications, convinced Arena to say, “Let’s see what’s possible.”
This loan was part of an overall facility of $20 million, with the proceeds allowing the company to make its product acquisitions and begin growing its organization again. Very soon after the funding, the company owned or had exclusive license rights to five key commercial-stage dermatological products, giving it a secure foundation to resume its growth. And it has more than lived up to the potential that Arena saw. Today, the company is one of the major players in the dermatitis treatment market globally, holding its own against the massive household names in the industry. It also has partnered with four women-owned dermatological practices, owns and operates a full-service spa, and controls 11 cosmetics product lines.
This healthcare company is one of a wide array of smaller, early-stage companies looking to get their exciting businesses to the next stage that Arena has funded in cooperation with venture-capital partners. We’ve completed deals spanning healthcare, digital marketing, biotechnology, software, data storage, HR and talent, pet care, fintech, fitness, insurance, data analytics, and other industries—and there is no constraint on where we may go next.