VC & Funding
What is venture debt?
Venture debt is a form of debt financing for venture-backed startups that supplements equity rounds. Unlike traditional bank loans, it's available to pre-profit companies based on their venture backing and growth trajectory. It typically comes as a term loan of 25-50% of the last equity round, with warrants attached, and extends runway without additional dilution.
Key Considerations
- Used to extend runway between equity rounds, not replace them
- Warrants give the lender equity upside — typically 0.5-2% of fully diluted shares
- Best deployed when the company has clear milestones to hit before the next equity raise
- Risk: debt obligations are real — unlike equity, it must be repaid regardless of company performance