Startup Funding Espresso -- How Does Venture Debt Work?

Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.

Venture debt can reduce dilution and give your startup more runway. Here are a few pointers to see if venture debt is a good fit for your fundraise:

It’s often used with equity funding for purchasing equipment, making acquisitions, or making up for funding not acquired through the equity raise.

If the company is in a difficult cash position, then venture debt will come with higher interest rates. 

If the proposed debt payments are higher than 20% of operating expenses, then it may not be a good fit. 

If the company has stable revenue and predictable receivables, then a line of credit may be a better choice than venture debt. 

Some tie venture debt to the company’s cash or accounts receivable.

Covenants around venture debt such as ‘material adverse change’ can trigger a recall of the debt early.

It helps to understand how the lender performs. Check their past history to find out more.


Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let’s go startup something today.
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