The Ultimate Guide to Raising Venture Debt for Your Startup

What is Venture Debt and Why Consider It?

Venture debt is a specialized form of debt financing designed for venture-backed, high-growth companies. Unlike traditional bank loans that require assets or positive cash flow, venture debt providers focus on a company's ability to raise future equity or achieve profitability.

When used strategically, venture debt can:

• Extend your runway without diluting equity
• Fund specific growth initiatives like expansion or acquisitions
• Provide a buffer against unexpected challenges
• Improve your negotiating position for future equity rounds

When is the Right Time to Raise Venture Debt?

Most companies raise venture debt shortly after closing an equity round when their cash position is strong. The ideal timing depends on your specific needs:

Post-Equity Round

Securing venture debt within 1-3 months after raising equity can increase your runway by 6-12 months without immediately diluting shareholders.

Growth Capital

If you've identified specific growth opportunities that weren't accounted for in your last fundraise, venture debt can provide the capital needed without diluting equity.

Bridge to Profitability

For companies approaching profitability, venture debt can provide the necessary runway to reach positive cash flow without raising additional equity.

How Much Venture Debt Can You Raise?

The amount of venture debt available typically ranges from 25-50% of your last equity round. For example, if you raised a $10M Series A, you might be eligible for $2.5-5M in venture debt.

Other factors affecting your debt capacity include:

• Monthly recurring revenue (MRR) and growth rate
• Gross margins and cash burn rate
• Quality of equity investors
• Strength of your intellectual property

Key Terms to Understand in Venture Debt

Interest Rate

Venture debt typically carries interest rates of 7-15%, depending on the company's profile, market conditions, and risk level.

Term Length

Most venture debt loans have terms of 3-4 years, with an initial interest-only period of 6-12 months before principal repayment begins.

Warrants

Lenders typically require warrants covering 5-20% of the loan value. These warrants give the lender the right to purchase shares at a predetermined price, usually the price of your last equity round.

Covenants

These are conditions you must maintain throughout the loan term, such as minimum cash balances or performance metrics. Violating covenants can trigger default.

The Application Process

Working with Mithril significantly streamlines the venture debt application process:

1. Initial Application: Complete our online form with basic company information.
2. Discussion: Have a call with our team to discuss your needs and growth plans.
3. Matching: We introduce you to the venture debt providers best suited to your situation.
4. Term Sheet: Review and negotiate term sheets with selected lenders.
5. Due Diligence: The selected lender conducts financial and business due diligence.
6. Closing: Sign final documents and receive funding (typically within 2-4 weeks of starting the process).

Ready to Explore Venture Debt for Your Startup?

At Mithril, we've simplified the process of securing venture debt. Our platform connects you with the right lenders based on your specific needs and profile, saving you time and improving your chances of success.

To learn more about how venture debt could benefit your company, apply now or contact our team for a consultation.