Venture Debt

Understanding Venture Debt

What Is Venture Debt?

In the past, venture debt was often one of the last sources of financing companies would consider. That’s because venture debt typically comes with higher interest rates and a shorter repayment period than traditional bank financing. But in recent years, this type of financing has gained traction as a strategic tool for companies that want to minimize equity dilution and preserve capital.

Venture debt is a great option for venture-backed companies that need to meet short-term financing needs but don’t want the dilution that comes with equity capital. However, there are a few things you should know before you pursue it.

Venture Debt vs Equity

Venture debt is a loan, which means you're lending money to a company in exchange for interest payments and repayment of the principal. Compared with equity financing, venture debt is safer because it's not a permanent stake in your company (you can get your money back at any time) and it doesn't give any control over how you run your business.

Venture debt usually has no set maturity date; instead, it's repaid when an investor wants to sell their shares or when they've made enough progress to attract new investors (or both). If an investor chooses not to sell their stake in your company when they have the opportunity, then there will be no penalty except interest on what you've borrowed from them until then—and even that might be waived if things go well.

How Does It Work?

If you’re thinking of how to finance your next round, think about venture debt. It can be a great option for companies that need funding but don’t want the dilution or control issues that come with equity financing; it also tends to be cheaper and faster than equity capital. Of course, there are still some important decisions to make when financing with venture debt: for example, whether or not you want secured debt, which lender is the best fit for your company, and what you hope to do with the funds once they’ve been raised. Still, venture debt can be a great option if used correctly—so don’t rule it out just yet!

Ready to grow your business?

We match business owners with financing options that work for their business.