Venture debt is a type of loan offered by lenders that is designed specifically for early-stage, high-growth companies with venture capital backing. Venture debt is a term loan issued to startups that have raised venture capital within the past years.
Venture debt loans do not replace equity – in fact, they follow equity. In comparison to traditional bank loans, where cash flow and other assets are indicators that a startup will be able to repay its loan venture debt lenders focus on:
- primarily on the strength of your venture capital investors and of the founding team;
- your innovation skills;
- your startup’s potential for growth; and
- the possibility that the startup will be able to raise venture capital again.
Venture debt is usually worth 30 % to 50 % of your previous round and unlike venture capital needs to be repaid with interest over the term of the loan.