Venture debt
Debt finance
Venture debt or venture lending (related: "venture leasing") is a type of debt financing provided to venture-backed companies by specialized banks or non-bank lenders to fund working capital or capital expenses, such as purchasing equipment. Venture debt can complement venture capital and provide value to fast growing companies and their investors. Unlike traditional bank lending, venture debt is available to startups and growth companies that do not have positive cash flows or significant assets to give as collateral. Venture debt providers combine their loans with warrants, or rights to purchase equity, to compensate for the higher risk of default, although this is not always the case.
Venture debt can be a source of capital for entrepreneurial companies. As a complement to equity financing, venture debt provides growth capital to extend the cash runway of a startup company to achieve the next milestone while minimizing equity dilution for both employees and investors.
Types of venture debt
Venture debt is typically structured as one of three types:
Growth capital: Typically term loans, used to extend runway between equity rounds, for M&A activity, milestone financing or working capital.
Accounts receivable financing: borrowings against the accounts receivable item on the balance sheet.
Equipment financing: loans for the purchase of equipment such as network infrastructure.
Venture lenders frequently piggyback on the due diligence done by the venture capital firm.
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This entry incorporates text from “Venture debt” on English Wikipedia. Contributors are listed in the page history. Text is available under the Creative Commons Attribution-ShareAlike 4.0 License. Selected authority identifiers and statements are retrieved from Wikidata under CC0; their references and qualifiers remain part of the verification path.