Venture Debt
Venture debt is a form of debt financing for venture-backed companies that supplements equity rounds — providing additional capital runway (typically 25-50% of the last equity raise) without significant dilution, usually structured with interest payments and warrant coverage.
Venture debt is not a replacement for equity — it's a complement. Companies typically raise venture debt shortly after closing an equity round, using it to extend runway, fund specific growth initiatives, or provide a bridge to the next milestone that will command a higher valuation.
The standard venture debt structure includes: a loan amount (usually 25-50% of the last equity round), an interest rate (typically 8-15%), a term (2-4 years with interest-only periods), and warrant coverage (0.05-0.20% of the company's equity, giving the lender upside participation).
Venture debt makes sense when: the company has recently raised equity and wants to extend runway, there's a clear use of proceeds that will generate returns within the debt term, and the company can service interest payments from current revenue or remaining equity capital.
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