Venture Debt

Also called: Venture lending

TL;DR

Debt financing extended to venture-backed startups, often used to extend runway between equity rounds with minimal additional dilution.

Venture debt is a loan made to a venture-backed company, usually structured as a multi-year term loan with monthly amortization, an interest rate of 8 to 12%, and warrants for equity. It's most often used to extend runway between equity rounds, fund equipment, or finance accounts receivable.

Lenders underwrite primarily on the strength of the company's recent equity round, the quality of its existing investors, and the burn rate. Venture debt is cheaper than equity in dilution terms but adds fixed obligations that can compound problems if the next round slips.

Worked example

A Series B SaaS with $20M ARR borrows $8M of venture debt: 36-month term, 12% interest, 10-month interest-only period, 1.5% closing fee, plus 4-year warrants for 1.5% of fully-diluted equity. The debt extends runway by ~6 months without triggering a down-round.

Common pitfalls

•Drawing venture debt to extend a runway that doesn't lead to a real milestone.
•Ignoring covenant risk, most venture debt comes with affirmative and negative covenants.
•Underestimating warrant dilution over multiple loans.

When this shows up in a pitch deck

Venture debt rarely shows up in the deck itself; it's negotiated separately and disclosed in the cap table.

Related terms

Bridge Round

A short-term funding round between priced rounds, often a SAFE or note from existing investors, used to extend runway to the next milestone.

Runway

The number of months the current cash balance will last at the current net burn rate before the company runs out of money.

Burn Rate

The rate at which a company spends cash, typically reported monthly. Reported as either gross burn or net burn.

Revenue-Based Financing

A non-dilutive financing structure where a lender advances capital and is repaid as a fixed percentage of monthly revenue until a multiple is reached.

Dilution

The reduction in an existing shareholder's ownership percentage caused by issuing new shares in a financing or an option grant.

Pitch deck pillar pages

Long-form deep dives on the slides Venture Debt most often shows up on.

Fundraising Readiness Checklist

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