![]() ![]() Interest typically accrues until maturity or until the loan converts to equity. You start off with a loan, which may then convert into equity at an agreed-upon outcome (like an event such as an IPO or sale of the business). This option combines the aspects of both debt and equity. You can pay back what you borrow and then have that available to borrow again. You can take it all out, or some whenever you need it. This gives you access to a certain limit of money, like a credit card line for your business. The funds may be released all at closing, or in tranches, giving you some money up front and the rest later to manage interest expense and debt load as the company scales. These have a fixed repayment period, usually two to three years from funding date. Just like more traditional financing through a bank, venture debt offers several types of options. Venture debt is an increasingly common source of growth capital funding, whether provided by specialist lenders, commercial banks, or other private debt funds. Specialist lenders like Partners for Growth are creating more options for startups to get the capital they need, whether they are venture funded, independently sponsored or bootstrapped high growth companies, or have raised early-stage funding from other non-VC sources. With the onset of the pandemic in 2020 few would have predicted another record year, but venture debt continues to prove be a popular option for venture backed companies globally, setting another record for total loan volume, though we saw a slight decrease in the number of companies financed. venture debt market was sized at $28.2 billion in 2019, hitting all-time record at the time. The growth of venture debt is currently outpacing venture capital, according to Pitchbook’s Venture Debt: a Maturing Market in VC. In fact, venture debt doesn’t need to replace venture capital. ![]() It may include a small equity stake to the lender, however, it will save the company’s existing equity holders significant dilution relative to raising that same amount of funding in equity.Ī common misconception about these two sources of financing is that it’s one or the other. ![]() Venture debt for startups is like any other kind of debt in that it has to be repaid according to the terms of the loan or at exit. On the other hand, they can look to raise debt. Investors have the right to a percentage of future profits or a stake in proceeds from the sale of the company. They can take venture capital, which is equity funding that provides permanent capital in exchange for a stake in the business. On the face of it, startups looking for funding to launch or grow their companies have two avenues to raise that capital. ![]()
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