Venture Debt
Loans to venture-backed startups, providing capital without as much dilution as equity rounds.
Definition
Venture debt is a type of loan specifically designed for venture-backed companies, typically provided by specialized banks (like Silicon Valley Bank) and debt funds. It usually comes as a term loan (fixed payments over 3-4 years) or a line of credit. Venture debt often includes warrants (giving the lender a small equity stake) and costs 8-15% annually. It supplements equity fundraising by providing additional runway with less dilution.
Why it matters
Venture debt extends runway without significant dilution, which is good for your ownership percentage. However, debt must be repaid regardless of company performance. If the company struggles, debt payments can accelerate a cash crisis.
Example
After raising a $20M Series B, a company takes $5M in venture debt at 10% interest with warrants for 0.5% of equity. This extends runway from 18 to 24 months. Monthly payments of approximately $180K are manageable at current revenue levels.