Full Definition
Venture debt is a form of debt financing available to venture-backed startups, typically provided by specialized banks and lenders. Unlike traditional bank loans, venture debt is designed for companies with limited assets and revenue, relying on the strength of the company's VC backers and growth trajectory.
Key Features
- Typically 25-50% of the most recent equity round
- Interest rates: 8-15% (higher than traditional loans)
- Terms: 2-4 year repayment schedules
- Warrants: Lenders receive warrants for equity (typically 0.5-2%)
- Covenants: Financial and operating requirements
When to Use Venture Debt
- Extend runway between equity rounds
- Fund specific capital expenditures
- Bridge to profitability
- Minimize dilution while still accessing capital
Major Venture Debt Providers
Silicon Valley Bank, Western Technology Investment, Hercules Capital, and TriplePoint Venture Growth are leading providers.
Real-World Example
After raising a $20M Series B, a startup takes on $8M in venture debt from SVB to extend runway by 6 months while minimizing founder dilution.
Related Terms
A short-term funding round to sustain a startup between two major financing rounds.
The amount of time a startup can operate before running out of cash, given its current burn rate.
The rate at which a startup spends its cash reserves, typically measured monthly.
The reduction in existing shareholders' ownership percentage when new shares are issued.
A form of private equity financing provided by firms to startups with high growth potential.
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