Venture Debt
Non-Dilutive Financing for Growth
Definition
Venture debt is a loan provided to venture-backed startups by specialized lenders. Unlike equity, it doesn't dilute ownership but must be repaid with interest. Often includes warrants (rights to buy equity) as a sweetener.
In Simple Terms
Venture debt is like a business loan designed for startups. Instead of selling 20% of your company for $5M, you borrow $2M, keep 100% ownership, but have to pay it back with interest.
Why It Matters
Venture debt extends runway without dilution. Common uses: (1) Bridge between rounds, (2) Finance equipment/working capital, (3) Extend cash runway to hit milestones before next raise. Downside: you owe money regardless of success.
Example
Company raises Series A but burns through it faster than expected. Instead of raising Series B early at a low valuation, they take $3M venture debt to hit profitability, then raise Series B at 3x the valuation with less dilution.