Funding · Series A+
Venture Debt: How to Extend Runway Without Extra Dilution
Venture debt is misunderstood — it is not free money. Used well, it extends runway between equity rounds without dilution. Used badly, it becomes a covenant landmine. This playbook covers the trade-offs.
Venture debt is a term loan for venture-backed startups, typically 25–35% of the last equity round, priced at prime + 3–6% with warrants of 5–15% of the loan amount. It extends runway without extra dilution but adds a fixed repayment obligation.
$1M–$50M
1–3% (warrants)
4–8 weeks
Best for
- Post-Series A startups with a strong equity sponsor.
- Founders using debt to hit a specific milestone before raising equity.
- Businesses with predictable revenue that can service debt payments.
Not for
- Pre-revenue startups without a strong equity round to backstop the loan.
- Companies with lumpy revenue that could miss payments.
- Founders unwilling to negotiate covenants carefully.
How it works
- Get an equity round closed first — venture debt underwrites the equity sponsor.
- Compare 3–5 lenders (SVB, First Citizens, Hercules, Trinity, etc.).
- Negotiate the term sheet: amount, interest, term, draw period, warrants, covenants.
- Close the loan, then draw capital only when needed.
- Service monthly interest, then principal, over the loan term.
Key metrics
25–35% of last round
Some lenders stretch to 50% for strong stories.
Prime + 3–6%
Plus origination fees.
5–15% of loan
Priced at last round.
Investor expectations
Some lenders require minimum cash or minimum revenue covenants — read carefully.
MAC clauses can accelerate repayment — this is the biggest risk to negotiate.
Pros
- Extends runway without equity dilution.
- Cheaper than equity in most cases.
- Signals discipline to future investors.
Cons
- Fixed repayment obligation.
- MAC and covenant risk.
- Warrants add small but real dilution.
Frequently asked questions
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