You’ve just closed a round of equity funding. After months of pitching, negotiating, and answering the same questions over and over, the money is in the bank. You’re exhausted. You’re jubilant. You’re ready to stop fundraising and start building. Probably the last thing you want to think about is more capital. But this is actually the best time to do it.
Venture debt is a specialist financing tool designed specifically for venture-funded companies. It’s not something you’ll get from your regular bank, but from specialist lenders who understand startup capital structure. What makes it attractive is simple: it gives you more access to capital without additional equity dilution. Understanding when it makes sense – and whether you’re even a realistic candidate – can save founders a lot of wasted effort.
When to Consider Venture Debt
Perhaps counterintuitively, the best time to raise venture debt is right after you’ve raised equity. That’s when you have the most money, the most runway, and lenders will view you most attractively. Trying to raise venture debt when your runway is running short is much harder – and sends the wrong signal. Very few venture debt lenders are prepared to lend when it’s already clear they might be the last resort.
Founders should think of venture debt as leverage to accelerate growth, not a rescue package. There are specialist “bridge” lenders who might help if you’re running short on capital but need bridging to something revenue-generating specific – a transformative contract, for example – but most venture debt isn’t designed for that.
Before spending time on the venture debt process, founders need to assess whether they’re in the right position to consider taking on venture debt.
First Steps – Know What Lenders Want
Lenders are typically looking for:
- Recent equity raise – ideally you’ve just closed a round and are in a strong financial position
- Strong investor roster – who invested matters – generally, highly rated VC firms not friends and family
- Manageable burn rate – sustainable relative to your runway and growth plan
- Clear path to profitability – or at least a credible story toward sustainability
- Strong team – lenders invest in the management team just as much as equity investors do
While this isn’t necessarily a “must have all” list, checking most of those boxes is going to give potential venture debt lenders a solid starting point. And of those, nothing beats a high quality equity investor base: if someone with a good reputation has already put unsecured money into your company in exchange for equity, that’s a strong signal. Lenders will feel a substantial amount of due diligence is already done.
How Companies Use Venture Debt
The most common use for venture debt is runway extension – with amounts typically adding 6-12 months of operating room. That extra time can make the difference between raising your next round from a position of strength and what might appear more like desperation. Most venture debt terms include at least an element of drawdown, so you may not even use the debt facility you’ve arranged – and you only pay for what you draw.
Working capital is a related but distinct use case. Where runway covers general operating costs, working capital is more specific – funding go-to-market investments, supporting bigger contracts, covering the cost of scaling sales. Runway is macro; working capital is micro. Venture debt is most commonly used for those two outcomes.
Trade-Offs To Consider
The upside is clear: Borrowing from a specialist venture debt lender means more capital at your disposal without further diluting equity. But venture debt is a liability – unlike equity, it has to be paid back. Before borrowing, founders need to clearly understand the terms and the mechanics: when does repayment start, are you paying interest only or principal too, what triggers drawdown, and what covenants restrict your flexibility.
Where companies get this wrong is by not paying close enough attention to those details. Mismanaging cash, missing projections, letting the debt become a burden rather than a tool – these are avoidable mistakes. Setting up proper guardrails around cash management and forecasting in order to meet potential debt obligations is essential.
When evaluating a venture debt facility, CFOs should scrutinize:
- Interest rate and what it’s linked to
- Warrant structure – can they be exercised, and when?
- Repayment timing – when does the clock start?
- Drawdown flexibility – can you access it when you need it?
- Covenant restrictions – are they so tight the debt isn’t worth having?
Why Attivo
Our clients do not “go it alone” when it comes to venture debt. We bring deep experience at every stage of the process – the result of a network of lender relationships built over almost three decades.
We have deep knowledge of who’s good to work with, and insight into what terms look like right now, not what they looked like two years ago. We can get a sampling of current terms quickly, cutting wasted time for everyone. Founders rarely have time for this, and most don’t have a CFO with experience in venture debt. We do.
Raising capital is challenging – the last thing you want is to go through another exhausting process alone. Our expertise, our relationships, and our internal collaborative team strength helps get it done right – without the stress.
