What is Venture Debt?

What is Venture Debt?

Here's everything you need to know about a market that makes no sense:

In the early days, startup funding is simple.

• beg your friends for money

• beg VCs for money

• beg VCs for more money

you give up equity. you get cash.

Those investors bet on a team and a dream.

But what about as your company grows?

You discover the world of Venture Debt.

Debt is designed for companies that produce cash flow because you need to generate cash to pay interest on a loan.

99% of startups don't do this.

So why does venture debt exist?

The simple answer:

Equity is expensive.

And if startups want debt, lenders will give it to them...

for the right price!

Here's the quick math...

If you raise a $20 million Series B that gives your investors 20% equity, your company is worth $100 million.

Assume your company burns $1 million per month.

If you burn $1 million per month, you have 20 months of runway.

But...

A $5 million venture debt loan of extends your runway by another 5 months.

You get 25% more runway with no dilution or very little depending on the debt terms.

Now think about it...

There are 5 big reasons to do venture debt:

• Extend runway

• Avoid dilution

• Bridge to your next equity round

• Buy another company

• Working capital needs

Now what do venture debt lenders care about?

Less metrics, more clout.

The cheapest debt goes to the startups backed by top-tier VCs.

Why?

Lenders know your investors are less likely to let you fail.

Other metrics?

• Runway > 12 months

• Total burn / month

• Revenue

• Latest equity round size

Now, there are two general rules when it comes to how much debt you can raise:

• 25-50% of revenue

• 25-35% latest equity round

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Okay, we barely scratched the surface.

I learned this talking to tons of startups and lenders.

But i'd be lying if I told you I'm an expert.

So I'm co-hosting a Venture Debt 101 workshop with the best in the biz.

Grab a spot for July 19 here: bit.ly/meowventuredebt