What Is Venture Debt?

What Is Venture Debt?

September 22, 2021 by investor

Venture debt is on the rise in the startup world as more startups find it a useful part of their fundraise strategy.

It’s a form of debt financing for venture-backed companies that lack the assets for traditional debt funding.  

Venture debt has been around for as long as venture capital has been writing checks for equity investments. 

It’s often used in conjunction with an equity fundraise.

It typically runs for three years and is secured by the company’s assets.  

Venture debt reduces dilution and gives the startup more runway before the next fundraise.

It lets the startup acquire more capital without setting a valuation for the company which is advantageous in advance of a new round of equity funding. 

Venture debt does not take board seats and is often cheaper than bank loans.

Venture debt is a more quantitative decision than equity capital which is more qualitative so the closing is typically faster.

The disadvantage is that it must be paid back in the near term and interest rates are typically higher than bank debt.


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Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.