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VENTURE DEBT

Venture debt is a loan provided to high-growth, typically venture-backed companies to fund further growth without requiring founders to give up additional ownership.

It is typically repaid through future equity raises or growing cash flows and is commonly used to extend cash runway between funding rounds.

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VENTURE DEBT KEY FACTS

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Used by: Venture-backed growth companies
Typical stage: Series A onwards
Purpose: Extend runway and reduce dilution
Loan size: 20%–30% of last equity round (typical)
Interest rate: 10%–15% all-in
Repayment: Interest-only period followed by amortisation and final repayment
Equity participation: Often includes warrants

What Is Venture Debt?

Venture debt is a type of loan provided to high-growth, venture-backed businesses that are typically not yet profitable but have strong revenue growth and backing from venture capital investors.

Unlike traditional bank lending, venture debt lenders rely primarily on the company’s future equity funding or growing cash flows for repayment, rather than existing profitability or asset coverage.

Venture debt allows businesses to extend their cash runway, accelerate growth, and delay or reduce equity raises, helping founders and investors minimise dilution. This allows founders to retain more ownership while still accessing growth capital.

Venture Debt vs. Venture Capital

Ownership And Dilution

Cost Of Capital

Venture capital and venture debt are complementary funding tools, but they serve different purposes and have different implications for founders.

Venture capital involves selling shares in the business in exchange for investment. This permanently dilutes existing shareholders. Venture debt, by contrast, is a loan that must be repaid and therefore results in significantly less dilution. Warrants are typically modest and represent a small fraction of the dilution associated with an equity round. Used effectively, venture debt can materially reduce dilution over the life of a business by reducing the amount of equity that must be issued to fund growth.

While venture debt carries interest, it is often a lower long-term cost of capital than equity. Equity investors typically expect returns of 20%–30% per annum or more, whereas venture debt interest rates are typically 10%–15% per annum.

Control & Governance

Purpose & Timing

Equity investors often require board seats, voting rights, and approval over key strategic decisions. Venture debt providers do not typically take board seats or operational control, allowing founders and existing investors to retain greater control of the business.

Venture capital is typically used to fund major growth phases and product development.

Venture debt is often used alongside venture capital to extend runway, accelerate growth, and delay equity raises until the business reaches a higher valuation.

How venture debt and venture capital are used together

Venture debt is rarely a replacement for venture capital. Instead, it is commonly used between equity rounds to extend cash runway and reduce dilution, allowing founders to raise equity less frequently and on more favourable terms.