As your company scales to millions in revenue, the nature of your financing strategy evolves.
You're no longer just proving your concept. You’re executing at pace, building teams, expanding into new markets, and watching your burn rate increase. Equity funding has likely fuelled your growth to date, but now you may be looking for ways to extend your runway without further diluting your ownership.
This is where venture debt comes into play.
What Is Venture Debt?
Venture debt is a form of debt financing designed specifically for high-growth startups and scale-ups that may not yet qualify for traditional bank loans.
It functions much like other forms of debt: a lender provides capital, and the company agrees to repay it over time, typically with interest. But what makes venture debt unique is its structure. It’s geared toward companies that don’t have significant tangible assets or strong, predictable cash flow—factors that would typically be required for standard credit facilities.
Warrants
To compensate for this higher risk, venture debt agreements usually include warrants. A warrant is a legally binding agreement that allows the lender to purchase equity in your company at a fixed price—the “exercise price”—at a future date.
It’s a mechanism that gives creditors some upside if your company performs well. While this can be a fair trade-off for non-dilutive capital now, it’s crucial to fully understand what you're committing to. Warrants can impact your cap table down the line, and should always be reviewed by legal counsel before you sign anything.
Use of Funds
There are several types of venture debt, each tailored to different business needs. Equipment financing is typically used when you're purchasing physical infrastructure—servers, machinery, or other assets that can be partially secured against the loan itself. Growth capital is the most flexible form of venture debt and is often used to bridge to a future funding round, support a strategic acquisition, or simply extend your runway without tapping more equity. Accounts receivable financing is more complex, involving the lender collecting on your outstanding invoices, effectively using your future income as collateral.
Each type of venture debt has its own structure, repayment mechanics, and risk profile. Before moving forward with any agreement, you should have a clear understanding of the terms, your obligations, and what happens if things don’t go to plan.
When it comes to lenders, you’ll typically deal with either venture debt firms or banks. Venture debt firms specialise in this kind of lending and can often offer more flexible terms and larger financing amounts. On the other hand, banks with a strong presence in startup ecosystems can be a solid option, especially if you already have an existing relationship with them.
Deal Terms
No two venture debt agreements are exactly alike, but there are some common elements you’re likely to encounter. Most agreements span between 24 and 60 months and may include interest-only periods, amortised repayments, or balloon payments that push a large portion of repayment to the end of the term. Interest rates will vary depending on market conditions and your risk profile, but they’re typically pegged to industry benchmarks or prime rates with an added margin. As for the equity (warrants) component, you can generally expect the warrant to represent a percentage of the total loan value.
Some agreements may also include additional clauses such as giving the lender rights to participate in your future funding rounds. These details matter. Overlooking them can cost you control or add complexity to later negotiations with future investors.
Final Thoughts
Ultimately, venture debt isn’t free money but it is a powerful tool when used strategically. It allows you to raise capital without immediate dilution, buy time to hit key milestones, and preserve ownership while growing. But it requires careful consideration. Before you pursue it, ask yourself what you’re financing, how you’ll repay it, and what equity concessions you’re really making in the fine print.
Approached wisely, venture debt can become a key part of your capital strategy. Rushed or misunderstood, it can turn into a constraint on your flexibility just when you need it most. Start from a place of strength, stay informed, and make sure every term reflects your vision for growth.
Fundraising in 2025
At our firm, we work with founders and investors at every stage of the fundraising journey — from term sheet to cash in the bank.
We help you prepare and negotiate term sheets, structure investment rounds, implement share option schemes, and resolve founder equity arrangements.
We also help you tell your story, in a way that builds confidence on both sides of the table.
If you’re thinking about raising capital this year — or advising a team who is — we’d be happy to speak with you about how to frame your position, protect your interests, and strengthen your outcome.