Wed, 22 September 2021
Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.
Venture debt is on the rise in the startup world as more startups find it a useful part of their fundraise strategy.
It’s a form of debt financing for venture-backed companies that lack the assets for traditional debt funding.
Venture debt has been around for as long as venture capital has been writing checks for equity investments.
It’s often used in conjunction with an equity fundraise.
It typically runs for three years and is secured by the company’s assets.
Venture debt reduces dilution and gives the startup more runway before the next fundraise.
It lets the startup acquire more capital without setting a valuation for the company which is advantageous in advance of a new round of equity funding.
Venture debt does not take board seats and is often cheaper than bank loans.
Venture debt is a more quantitative decision than equity capital which is more qualitative so the closing is typically faster.
The disadvantage is that it must be paid back in the near term and interest rates are typically higher than bank debt.
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