Venture debt is a loan offered to fast-growing investor-backed startups – also referred to as venture-backed startups. Venture debt provides them with access to non-equity capital with minimal dilution to support growth until the next equity round. It complements equity financing but doesn't replace it.
Venture capital, on the other hand, is an equity investment where investors receive ownership stakes in the company. While venture debt requires repayment with interest, venture capital returns are realized through exit events like acquisitions or IPOs.
Accelerate growth with Venture Debt Financing
Why raise venture debt?
Venture debt is a loan designed for fast-growing investor-backed startups, providing them with access to non-equity capital with minimal dilution. It's a debt financing solution ideal for venture-backed companies that have raised a Series A or a sizeable seed round of $5M+. It is often secured at the same time or soon after an equity round and is used to extend runway between equity raises.
Accelerate company growth
Venture debt reduces the average cost of the capital to fund operations when a company is scaling quickly or burning cash.
Boost cash reserves and flexibility
Venture debt can be used as a cash cushion against operational glitches, fundraising challenges and unforeseen capital needs.
Extend runway
Venture debt extends cash runway at a fraction of the cost of equity - typically providing several months of additional capital to help achieve milestones.
Complement an equity round
Raising debt alongside equity fundraising allows for optimal leverage, terms and efficiency and ensures access to capital when you may truly need it.
Bridge to equity round
Venture debt can help bridge the gap to the next equity round - providing an alternative to an expensive bridge round.
Minimize equity dilution
Keep more of what you've built: venture debt is generally +95% less dilutive than equity, so you and your team retain more ownership as you grow.
Why startups choose us as their venture debt lender
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Unmatched experience and expertise
As a patient lender to the innovation economy for 40+ years, we're one of the largest venture debt providers - supporting thousands of startups across all kinds of niches and market conditions. Our deep experience offers a unique perspective on how venture debt can propel your success.
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Consultative partner
We are here for you every step of the way, led by a dedicated advisor passionate about supporting you through every stage of your rapid growth. We share your vision and help you see it through, delivering value well beyond the check.
Flexible, creative debt solutions
Tailored financing options, including venture debt, are designed to solve your long-term business needs and pinpoint the right amount of funding you may need. See some of our recent transactions.
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If you are a high-growth startup, we can help you determine if and when venture debt may be right for you.
Learn more about venture debt
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Why raise venture debt before you need it?
Discover when to raise venture debt for your startup. Maximize your funding strategy with insights tailored for ambitious startups seeking growth.
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Answered: Startups' common questions about venture debt
What is venture debt? Learn the fundamentals of venture debt financing for Series A and high-growth startups. Get answers to important questions.
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What is the right amount of venture debt?
Venture debt can be a valuable tool for founders looking to extend runway until their next raise, without diluting equity. But how much venture debt do you need? Or how much is too much? Get our perspective on factors to consider when selecting a venture debt lender and negotiating the terms.
Venture Debt FAQs
Venture debt assesses a company’s growth potential and future funding ability, unlike traditional loans that underwrites to cash flow and collateral. Venture debt offers flexible debt capital with less dilution than equity financing. Venture debt bridges gaps between equity rounds without selling ownership stakes or board seats.
Venture debt allows startups to access capital without issuing new shares, preserving ownership for founders, employees and existing investors. While there may be some minimal dilution from warrants, it's generally much less than that of a new equity round.
Learn more by reading: How equity dilution impacts early stage startups?
The optimal time to raise venture debt is shortly after closing a new equity round, as this enhances bargaining power and provides strategic flexibility. Avoid waiting until cash reserves are low, as this can limit negotiating positions and increase costs, or even potentially risk eliminating the availability of venture debt.
Learn more by reading: When is the right time to raise venture debt?
- A common range of venture debt is 20-40% of your last equity round or 6-8% of your post-money valuation. For example, if you raised a $20M equity round, you might consider $4M-$8M in venture debt.
- Aim for debt that adds approximately six months of runway – but most lenders expect you to have at least 12 months of organic runway in addition to the debt.
Learn more by reading: Striking a balance – What’s the right amount of venture debt for your startup?
While each lender has its own criteria to qualify for venture debt, they generally include:
- Having raised at least $4M in a single equity round
- Backing from reputable venture capital firms
- Demonstrable growth trajectory
- Adequate cash runway (usually 12+ months, exclusive of debt)
- Clear plan for using the debt to reach significant milestones
- Strong management team and business model
When used strategically, venture debt can enhance your ability to raise future equity by extending your runway and helping you achieve key milestones. It signals financial stability and may increase appeal to investors. However, excessive leverage can deter future investors, so it's important to manage debt responsibly. Remember, debt is a liability that future investors will consider.