How does Venture Debt work?

Venture debt (or growth debt) is a lending arrangement typically offered by specialist funds to venture capital-backed but still loss-making high growth technology, life sciences, or similar businesses. Loan providers effectively agree to largely cap their returns (hence reducing the dilution vis-a-vis venture capital financing) but in return require to be the first in line (taking a senior secured position) in the repayments waterfall. Minimum business size and the facility requirements typically apply (e.g. loans are likely to be 1m+, whereas revenue-based financing can be from 10k+).

Typical venture debt arrangement consists of:

  • 3-year monthly amortising (can include an interest-only period in the beginning) senior secured term loan, with a fixed interest rate

  • Likely would include negative covenants and sometimes also financial covenants

  • A warrant agreement, giving the debt provider the right to acquire a small portion of shares at the current valuation, exercisable at a liquidity event (a sale of the business or an IPO). This gives away some equity upside but reduces the cash costs of a loan

  • Upfront and back-end fees

Venture Debt providers

News & Resources

Kiadis announces the placement of €5 million convertible bonds with Kreos - Yahoo Finance

01/10/20

Exicure Secures Debt Facility for Up to $25.0 Million - Business Wire

01/10/20

Berlin-based Infarm raises €144 million during pandemic to grow largest urban vertical farming network in the world - EU-Startups

17/09/20

Scope Fluidics Secures €10M Loan From European Investment Bank - 360Dx

08/09/20

Harbert European Growth Capital Fund II provides Butternut Box with debt capital - Business Leader

07/09/20

Israeli asset manager Viola Credit bolsters MarketFinance CBILS lending by £50m - AltFi

07/09/20

EIB offers EUR 10-mln loan to Polish medical researcher - The First News

07/09/20

Selecta Biosciences Secures Up To $35 Million Debt Financing with Oxford Finance LLC and Silicon Valley Bank - GlobeNewswire

01/09/20

FireMon Secures $40 Million Debt Financing with Silicon Valley Bank - Security Boulevard

01/09/20

Dundalk's Diaceutics raises €4.45m from Silicon Valley Bank - Siliconrepublic.com

26/08/20