A lending instrument for high growth companies
Venture debt is normally raised at the time of a venture capital round or soon thereafter, and also sometimes as a way of extending cash runway between venture capital rounds giving the company time to execute further milestones before fundraising.
Venture debt is a well-established instrument provided by technology-focused banks and also by some non-bank specialist lenders. Companies that raise venture debt are almost exclusively VC-backed, so it’s not available to companies who have bootstrapped or funded themselves through alternative methods.
Repayment periods can be anything up to 5 years, but 2-3 years is the norm. Venture debt is normally structured as a term loan which means that you receive all the money upfront and then have to pay down the loan over the term in regular agreed instalments, including both principal and interest payments - just like a personal loan or a small business term loan.
Often you will have to pay additional setup and legal fees depending on the complexity of your business and the level of due diligence required. Venture debt providers will also typically require equity warrants in the company (typically 0.25-2.5%), to give them additional upside if the company is sold or listed.