Providing entrepreneurs with today's tools for tomorrow's success

Startup Teaching Sessions – Venture Debt

Author: Dolph Hellman

Emerging companies are often in need of, and are looking for, cash – typically to extend their “runway” before having to raise additional equity.

Venture debt is a compliment to venture capital, allowing startups to borrow money and establish lines of credit pre-cash flow. If your startup is successful, you stand to gain more from an exit. If it fails, you will be held more accountable than by venture funding.

Confident you won’t fail? Then read on:

Like any other type of debt, you have to pay it back, which could have a high interest rate. Collateral is typically in the form of company assets, so if it can’t be paid back, the company could be liquidated.

Debt is a word that carries negative connotations and consequences, but has some advantages over equity. Most importantly, you’d retain a greater portion of the company. Venture debt could also be attractive to VCs, the extra capital from a third party mitigates risk and could increase runway to the next equity round.

Types of Venture Debt Financing

  • Equipment Loan
  • Equipment Lease
  • Growth Capital Line
  • Accounts Receivable/Inventory Line

If you have questions about typical financing deals and where to get them, contact Dolph Hellman, [email protected].