An attractive feature of venture debt is that it prevents further dilution of the company’s equity, which in turn encourages existing investors to adopt it as a method for raising capital.įurthermore, venture debt does not usually require that (extensive) collateral be offered as is typically found in other forms of debt financing. The latter is often the focus for venture debt lenders, as the amount made available will usually depend on the amount of equity raised by the company up until that point. Venture debt is therefore a type of debt financing which provides funds at an early stage which is used for the funding of commercial activities, acquisition of assets, capital raising or to assist the company to the next round of equity injection. The start-up uses this equity to develop its concept or product, to enter into its relevant market, to build up its corporate structure, to establish its sales activities and to expand its production and sales. Venture debt financings are also different to venture capital financings, as it is funding provided at an early stage of the start-up (but after the initial seed and venture capital has been provided), so venture debt complements venture capital.Ī start-up’s development cycle begins with equity provided by founders, ‘angels’, ‘seed’ and venture capital investors. In contrast to venture debt financings, which relate to start-ups, bank or private debt financings involve the financing of established companies that have already generated profits, can provide collateral and service the debt from the start. Bank or private debt and venture debt are separate segments in the debt financing market.
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