What is Venture Debt?

Venture debt (sometimes referred to as “growth capital term loan”) is an alternative form of financing provided to venture-backed companies. It is a short-term loan with an interest rate attached, that must be paid back at the end of the loan term. Venture debt is often used to bridge a company to a particular milestone or goal without requiring equity dilution.

To be eligible for venture debt, companies must meet certain criteria: they must be venture-backed (with the quality of the VC mattering in terms of rates and amounts), trying to maximize growth rather than profitability (hence, who your investors are matters), and have the ability to pay back the loan through non-diluted capital raises. Furthermore, venture debt is often issued with a limited I/O period and takes into consideration the performance metrics of a company (such as burn rate, liquidity, projections, milestone achievements, etc.).

Pro Tip: If your company is looking into venture debt, make sure to use a bank that is not phasing out this offering anytime soon, as it could be a painful issue down the road. Mercury is our preferred banking partner to offer venture loans and encourages companies to consider three factors.

  • Will additional equity be needed?
  • Which metrics will influence the next-round valuation?
  • What level of performance correlates to nondilutive access to capital?

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