What is Venture Debt?
Venture Debt provides loans to venture-backed startups that have already raised equity funding. Unlike equity, venture debt is non-dilutive to founders. The fund earns through interest income (14–18%) plus equity warrants that provide upside participation. It sits senior to equity in the capital structure.
- Non-Dilutive: No equity dilution for startup founders
- Priority Repayment: Debt ranks senior to equity in liquidation
- Warrant Coverage: Warrants provide equity-like upside to the fund
- Shorter Tenor: 18–36 month loans vs. 7–10 year equity funds
- Lower Risk: Secured debt with contractual repayment vs. equity risk
How Venture Debt Works
Venture debt is typically deployed alongside equity rounds:
- Loan extended to VC-backed startups with 12+ months runway
- Interest paid monthly; principal repaid over 18–36 months
- Warrant coverage of 5–15% of loan amount for equity upside
- Covenants include minimum cash balance and reporting requirements
- Exits via loan repayment; warrants exercised on IPO or secondary