Questions (FAQs)

Venture debt is non-dilutive financing provided to venture capital–backed companies, typically alongside an equity round. It is usually structured as a term loan or revolving credit facility with maturities of 1 to 4 years, interest rates are above that of bank debt, to factor for higher-risk, and sometimes carry a small warrant component.

Venture debt lenders underwrite risk based on equity backing, revenue visibility, and growth trajectory rather than profitability. Facilities are often sized at between 20% and 40% of the most recent equity round and repaid monthly or quarterly, with covenants tied to liquidity or performance metrics.

No. Traditional bank debt relies heavily on profitability, asset security, and historical cash flows. Venture debt is designed for high-growth, high-risk, often pre-profit companies, and relies on institutional investor support, future fundraising capacity, and projected cash generation in the long-term.

Common use cases include extending runway by an additional 6 to 18 months, financing growth initiatives such as hiring or international expansion, funding capital-intensive investments, or reducing dilution by delaying the next equity round until higher valuation milestones are reached.

Venture debt is generally complementary to equity, rather than a replacement. Most lenders require recent or concurrent equity financing to be in place, and venture debt works best when paired with strong investor backing and a clear path to future equity rounds, cash flow breakeven, or profitability.

Venture debt is typically considered post-Series A, once a company has institutional venture capital backing, improving revenue visibility, and predictable cash burn. Most lenders prefer companies with at least 6 to 12 months of runway post-financing and a clear fundraising or growth plan in place.

Early-stage companies can raise venture debt in selective cases, particularly when they are backed by top-tier venture capital firms, or pursuing capital-intensive strategies. However, lender appetite is meaningfully stronger from Series A onwards, when business models, metrics, and governance are more mature.

Pre-revenue venture debt is rare but possible in sectors such as deep tech, climate, or hardware when supported by strong investors. In these cases, debt is often milestone-based, smaller in size, and carries stricter covenants reflecting higher risk.

Venture debt is generally unsuitable for distressed companies, businesses with highly volatile revenue, or teams without clear access to future equity. If repayment relies entirely on optimistic fundraising assumptions, venture debt can increase downside risk.

Boards typically assess venture debt based on dilution impact, covenant risk, liquidity buffers, and impact on future fundraising. Well-structured debt that extends runway without constraining strategy is often viewed positively by experienced venture capital boards.

A well-managed venture debt process typically takes between 4 and 8 weeks from initial assessment to term sheets, followed by 2 to 4 weeks for documentation and closing. Timelines depend on preparedness, lender fit, deal complexity, and regulatory or diligence requirements, but generally we expect deals to close within 3 to 4 months.

The process usually involves assessing debt suitability, designing the optimal structure, preparing lender materials, engaging and shortlisting lenders, negotiating commercial terms, and completing legal documentation through to funding and drawdown.

With proper preparation and advisory support, Founder and CFO/COO involvement is typically limited to key decision points, lender meetings, and approvals. Most of the process management, lender coordination, and negotiation can be handled externally, with lawyers also engaged to handle legal documentation.

Lenders typically request historical financials, forecasts, cap tables, investor details, board materials, and KPIs (Key Performance Indicators)m such as ARR (Annual Recurring Revenue), customer churn rates, burn multiple, and liquidity runway. In regulated or highly technical sectors, additional diligence may be required.

Yes. Competitive processes involving between 5 and 10 relevant lenders often result in better pricing, covenant flexibility, and structure. Broad, unfocused outreach is usually counterproductive and can weaken negotiating leverage.

Venture debt advisory fees generally range from 1.0% to 5.0% of capital raised, with percentages decreasing as the deal size increases. For example, fees may be 3.5% on the first €10m, lowering down to between 2.5% and 1.5% on subsequent tranches, and lower thereafter, once exceeding €100m.

Most founder-aligned venture debt advisors operate on a success-based model, meaning fees are payable only upon successful closing of debt financing. This aligns incentives and avoids upfront retainers, which are less common in venture debt than in equity fundraising. However, some advisors may charge a retainer, which is often capped and rolled into the final fee payable.

Retainers are charged by some debt advisors, however for pure venture debt execution mandates, this is uncommon. Retainers may be used for discrete strategic work, but most full-process advisory engagements rely primarily on contingent success fees, payable only once financing closes.

Fees are typically calculated on the final committed debt amount, and may include tiered structures, minimum fees, or even fee caps. Fee mechanics are always documented in an engagement letter, as to ensure transparency and alignment.

Typical terms include maturities of between 12 and 48 months, interest rates above base rates (as set by central banks), amortisation schedules, minimum liquidity covenants, and sometimes warrants representing between 0.5% and 5.0% of equity on a fully diluted basis.

Common covenants include minimum cash balances, revenue or ARR (Annual Recurring Revenue) thresholds, reporting obligations, and restrictions on additional debt being drawn. Covenant flexibility varies significantly by lender and can often be negotiated through a competitive process.

If performance company deteriorates, lenders may seek covenant waivers, amendments, or restructuring in extreme circumstances. Outcomes depend heavily on preparation, transparency, and relationship quality. Conservative structuring and sufficient liquidity buffers significantly reduce downside scenarios.

When structured properly, venture debt can improve fundraising outcomes by extending runway and improving leverage. Poorly structured debt with tight covenants or aggressive amortisation can complicate equity raises, particularly during market downturns.