Venture Deals, 4th Edition

CHAPTER 11Venture Debt

While the phrase “raising venture capital” is often used as a synonym for equity, we have now discussed other financing mechanisms including convertible debt and crowdfunding. Another type of funding, known as venture debt, falls into its own category. The vast majority of venture-backed companies raise venture debt at some point in their life from specialized banks such as Silicon Valley Bank (SVB), which graciously wrote the following insider’s guide to raising venture debt.

The Role of Debt versus Equity

If you are going to raise institutional venture capital to build and grow your business, it’s worthwhile to consider using venture debt to complement the equity you raise. Venture debt is a type of loan offered by banks and nonbank lenders that is designed specifically for early stage, high-growth companies with venture capital backing. This chapter will provide insight on the types of loans that are available to venture capital–backed companies in the United States, how to pick the right lender for your company, the benefits typical of venture debt, what to expect on a term sheet, and tips for negotiating a successful deal. We’ll also introduce you to the process and the players involved in the venture debt ecosystem, and the benefits and risks associated with this type of capital.

Identifying the right balance between equity and debt is an important part of an overall capital strategy. In Chapter 3, we emphasized the virtue of identifying how much ...