What Is Venture Debt?

Venture debt is a form of financing for early to late stage venture-backed companies, to help in their growth plans.

An established form of financing in the US since the early 1980s, Mark Taylor was one of the founders of Europe’s first venture debt business in 1998 – since when the market has grown significantly with venture debt now widely used across Europe.

Whether raising capital for the early equity rounds or preparing for an IPO, venture debt is often used to extend the cash runway, whilst preserving the firepower of the VC backers and minimising dilution of shareholders.

Unlike a traditional bank loan, a venture debt facility is combined with warrants which compensate the lender for the higher risk profile of the investment.

As well as interest payments it is normal to seek warrants or share options, typically of up to 20 per cent worth of the facility, which often represents less than 2 per cent of the company’s shares based on the latest VC valuation.

Venture Finance is not a substitute for equity; it is complementary, adding to the overall capital structure.