DEFINITION of 'Evergreen Funding'

Evergreen funding is the gradual infusion of capital into a new or recapitalized enterprise. This type of funding differs from the traditional funding situation in which all the capital required for a business venture is supplied up-front by venture capitalists or other investors as part of a private funding round. When the money is provided upfront, the company then invests in short-term, low-risk securities until it is ready to use the money for business operations. With evergreen funding, capital is provided on a schedule or upon request by the investment team to the management of the company. Evergreen funding has also been used to describe a revolving credit arrangement in which the borrower periodically renews the debt financing rather than having the debt reach maturity. In this sense, lines of credit and overdrafts are types of evergreen funding as the borrower applies for it once and then is not required to reapply again to access the credit within at a later date. Evergreen funding is distinct from an evergreen fund. An evergreen fund is an investment fund that has an indefinite fund life, meaning that investors can come and go throughout the life of the fund. 

BREAKING DOWN 'Evergreen Funding'

Evergreen funding takes its name from coniferous evergreen trees, which keep their leaves and stay green throughout the entire year rather than losing them during winter. Similarly, evergreen funding means capital is provided throughout the seasons of a company's development. In a normal debt-financing arrangement, company-issued bonds or debentures have a maturity date and require principal repayment at some future point in time. An evergreen funding arrangement, however, allows a business to renew its debt periodically, pushing back the maturity date each time so that the time until maturity remains relatively constant while the arrangement is in place. In the case of venture capital dollars, the financing is done by selling ownership stakes in the venture, but the infusions of capital are spread out over set periods. This approach is used to avoid pushing a company's growth beyond artificially fast. Evergreen funding of this nature assures entrepreneurs that the money is there but prevents them from growing too rapidly by limiting the pace of capital infusions. 

Evergreen Funding for Cautious Growth

The main argument for evergreen funding for new ventures are the cautionary tales of startups that grew too fast and quickly outpaced their business model to the point that a profitable business on one scale becomes a ruined venture on the larger scale. Nevertheless, the majority of venture funding is still of the upfront variety as founders and investors are eager to scale up as fast as possible in order to fill any market voids in their sector before other startups can emerge to compete. Moreover, venture capitalists want as much of the growth as possible to occur when the company is in the private market so that the value of a potential IPO on the public market pays the maximum return. 

RELATED TERMS
  1. Evergreen

    Evergreen is a contract provision that automatically renews an ...
  2. Term Out

    Term out is a financial concept used to describe the transfer ...
  3. Venture Capital Funds

    Venture capital funds invest in early-stage companies and help ...
  4. Fund

    A fund is a source of money that is allocated for a specific ...
  5. Investment Fund

    An investment fund is the pooled capital of investors that enables ...
  6. Closed Fund

    A closed fund is a fund that is closed to investors, either temporarily ...
Related Articles
  1. Small Business

    Who are Venture Capitalists?

    Venture capital investment firms can provide the seed money for high-risk, start-up companies. People called venture capitalists run these firms, and make the investment decisions.
  2. Small Business

    Fed Raising Rates Affects Startup Funding

    With interest rates having nowhere else to go but up, the Fed’s impending interest rate raise will likely begin to reverse the flow of startup funding.
  3. Insights

    Is Venture Capital Slowing in the U.S.?

    Venture capitalists are more selective in 2016, turning away from U.S. startups in an era of big business and slow growth prospects.
  4. Investing

    Liquidation Blues: When Mutual Funds Close

    Underperforming mutual funds can be liquidated, leaving investors down and out.
  5. Tech

    The Risk And Rewards Of Investing In Startups (GOOG)

    Investing in startups is a very risky business but can reward investors greatly if and when they do pay off.
  6. Tech

    #1 Country For Tech Start-Ups: U.S.A

    U.S. tech companies are receiving increased levels of investor funding. In 2014, the number of mega-deals for such ventures doubled over the previous year.
  7. Financial Advisor

    Target-Date vs. Index Funds: Is One Better?

    Target-date and index funds are difficult to compare because they differ in both structure and objective, though investors can compare two specific funds.
  8. Investing

    Too Many Mutual Funds?

    Is there a magic number you should be aiming for? Find out here.
  9. Investing

    10 American Funds Mutual Funds with Long Track Records

    Learn about the performance of the mutual funds offered by Capital Group's American Funds that have the longest established track records.
  10. Investing

    An Introduction to Sector Mutual Funds

    Investing among several different sectors in the economy is a way to diversify your portfolio.
RELATED FAQS
  1. What Is an Evergreen Provision?

    An evergreen provision grants equity allotments to certain employees on a regular basis. Read Answer >>
  2. How is venture capital regulated by the government?

    Learn about some of the ways in which the U.S. government and the Securities and Exchange Commission regulate venture capital. Read Answer >>
  3. What are the primary disadvantages of forming a joint venture?

    Learn the disadvantages to forming and maintaining a joint venture partnership, including factors business owners should ... Read Answer >>
Trading Center