Venture debt
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Funding - startups.
Venture debt is a loan to an early stage company that provides liquidity to a business for the period between equity funding rounds.
Typically, these loans are repaid within a period of 18 months or sometimes up to two-three years.
Most often, private venture debt providers (investment funds or banks) expect to be repaid from the proceeds of the next [equity] funding round.
(Source - European Investment Bank (EIB).)
- When venture debt doesn’t work
- "Shrinking businesses, with weak or falling margins are typically unsuitable.
- Very high [cash] burn [rate], inefficient businesses are not ideal candidates – and even less so should they appear to be structurally loss making.
- It’s worth noting that any substitution - in place of equity - should only be executed in successful, growing companies that could raise equity, but choose not to - rather than those who cannot raise venture capital, and instead are seeking debt as a last resort."
- Diversify funding sources without dilution: financing through venture debt - Antony Baker, principal, Claret Capital Partners - The Treasurer - Issue 4 of 2024, p40.
See also
- Business angel
- Cash burn rate
- Centre for Finance, Innovation and Technology (UK)
- Crowdfunding
- Debt
- Entrepreneur
- European Investment Bank (EIB)
- Financial technology
- Fintech
- Incubator
- Liquidity
- Mezzanine
- Preference shares
- Private equity (PE)
- Profit margin
- Seed
- Series A
- Series B
- Startup
- Venture capital
- Venture Capital Schemes
