The Blog

Musings on corporate finance, fund raising, capital markets and other matters

Venture Debt

Venture debt lending has become an increasingly popular financing option for fast growing scaleups in Europe in recent years. Venture debt lenders provide capital to companies that are unable to obtain traditional financing due to their lack of profitability or business model. This type of financing has allowed many entrepreneurs to scale their businesses and pursue their goals, while reducing the risk of the venture. Recent events in the market and the resulting lower availability of equity have further accelerate the trend towards venture debt.

Venture debt lenders typically provide capital in the form of term loans. These loans are provided without any collateral, making them attractive to borrowers who would otherwise be unable to secure traditional financing. The loans are typically structured with flexible repayment terms, which can include deferred principal payments, and equity upside features.

Venture debt is a great financing option for fast growing companies because it provides capital with much reduced equity dilution and extend the company runway between equity rounds.

Venture debt lenders in Europe have a variety of criteria they use to assess potential borrowers. These criteria include the company’s financials with a specific focus on recurring revenue, the stage of the business, the industry, and other factors. They also consider the management team and their track record. Finally, they pay particular attention to the experience, track record and financial capabilities of the lead financial backers (be those VC or private equity firms).

Compared with other flavours of debt that are also available for scaleups, such as debtor or purchase order finance and recurring revenue financing, venture debt can be beneficial for borrowers in terms of providing them with a longer-term and stable financing option. Many venture debt lenders offer repayment terms of five years and beyond, which can give companies more time to scale and generate revenues.

For borrowers, venture debt can be a great source of capital to help grow their business. It can provide them with the funds they need to invest in new initiatives, expand into new geographies, hire key personnel, and invest in marketing and operations. Additionally, venture debt can help companies bridge the gap between their current and future financing needs.