Venture debt

Venture debt differs from normal debt in that venture debt is a specialized financing option for venture-backed companies. It is normally provided by specialized venture debt firms, banks with dedicated venture debt divisions and institutional investors. BDC provides venture debt.

Venture debt is often used in conjunction with an equity raise to provide additional capital. One important characteristic of venture debt is that, unlike equity financing, it does not dilute existing shareholders’ equity. This means that while venture debt provides the necessary capital for growth or operational needs, it allows founders and current investors to retain their ownership stakes without giving up additional shares in the company.

Typically, venture debt is priced based on the valuation and terms of the company's most recent equity financing round. For instance, if the company’s last financing round was a Series A, the terms and pricing of the venture debt will be influenced by the valuation and conditions established during that Series A round.

Unlike equity investors, venture-debt investors are typically less flexible and more stringent in enforcing the terms of the lending contract. While equity investors may offer more leeway and support, venture-debt investors focus on ensuring the company adheres to the agreed-upon repayment schedules and covenants, reflecting their emphasis on securing repayment and managing risk.