Venture debt
A loan after a round, often with warrants: runway with less dilution, and a repayment schedule that does not wait.
Venture debt is a loan to a company that has raised venture equity, usually soon after a round. It extends runway with less dilution than selling more stock — the lender typically takes a warrant for a small amount of equity — but it is a loan: interest and principal are owed on schedule whether or not the next round comes.
On the books it is ordinary debt: cash and a loan payable when it lands, then each payment split between interest expense and principal. The loan repayment entry and the loan calculator show the schedule.
Venture debt
- Good at
- Far less dilution than equity for the same cash
- Can be drawn as needed
- No new valuation
- Watch for
- Must be repaid; covenants can restrict the company
- Warrants still dilute a little
- Dangerous when the next round is uncertain
- Best for
- A company that just raised equity and wants more months before the next round
Where this lesson's rules come from
The sources behind this lesson's requirements, by kind. Background reading explains; it is never the authority for a rule. Anything marked as a convention is ours, not the rule-maker's.
- Background reading — not an authority
- Wikipedia, “Venture debt” (opens in a new tab)Venture debt and warrant coverage — backgroundFree to read
The words this page teaches
Each links to its glossary definition, which also names the authority behind it and the components that render it.
- Venture debtA loan to a venture-backed company, usually alongside or just after an equity round, often with warrants for the lender. It extends runway with less dilution than equity, and must be repaid whatever happensConvention
- WarrantA right, issued by the company, to buy its shares at a fixed price for a set period — what a venture lender usually takes alongside a loanConvention
See also
- Loan amortizationA level-payment schedule whose last payment clears the balance to the cent.
- Journal entry for a loan repaymentWhen the loan is received, debit Cash and credit Loan payable. Each payment debits Interest expense for the interest portion and Loan payable for the principal portion, and credits Cash for the full payment.
- Debt-to-equity calculatorDebt-to-equity is a leverage and coverage metric, calculated as Total debt ÷ Total equity.