What is venture debt?
Venture debt is a loan to a fast-growing, usually not yet profitable business that has recently raised venture capital. The lender accepts that cash flow is not yet positive and relies on growth, the quality of the investors and the prospect of a further funding round.
Why use it?
- Extend your runway: a few extra months to reach a milestone
- Less dilution: raise capital without selling shares at the current valuation
- A better next round: higher revenue puts you in a stronger negotiating position
- Bridging finance: between two equity rounds
What does a deal look like?
| Element | Typical terms |
|---|---|
| Amount | 20–35% of the latest equity round |
| Interest | 9–14% |
| Term | 3–4 years |
| Repayment holiday | 6–12 months |
| Warrants | Share subscription rights worth 5–15% of the loan amount |
What do venture debt providers look at?
- Quality of your investors: are they willing and able to invest further funds?
- Growth metrics: ARR growth, retention, churn and unit economics
- Burn rate and runway: how many months can you keep going with the loan included?
- Gross margin: SaaS and software are popular; hardware with thin margins much less so
The risks are real
A loan must be repaid, even if growth falls short. If the next funding round fails to materialise, repayment obligations can put the business in difficulty. Pay particular attention to:
- Material adverse change clauses that give the lender the right to demand early repayment
- Financial covenants linked to revenue or minimum cash balances
- Final payment fees charged on top of interest
When is it suitable, and when is it not?
Use it when you have a specific milestone within reach and your existing investors are supportive. Do not use it to cover a structural shortfall or if your runway without the loan is already less than six months: you are mainly buying time at a high price.
Conclusion
Venture debt is a powerful tool: used at the right time, it can save you considerable dilution, but poor timing increases the risk. Model several scenarios before signing.
Sources and scope
Examples and policy choices in this article are illustrative, not a current quotation, fixed standard or financial or legal advice. The editorial revision date relates to the summary, structure and source references; it is not a reference date for the underlying data.
| Primary source | What is it used for? |
|---|---|
| European Investment Bank — venture debt | Primary-source guidance on the EIB's own venture debt offering; not market-wide rates or terms. |
| KVK (Dutch Chamber of Commerce) — checking business partners | Company identification and checks on business partners. |
Source links support the topic mentioned, but do not automatically substantiate all percentages, time frames or examples in this article. Check current terms and rules with the responsible authority.
Request credit information with sources and reference dates
