What is Venture debt?

Senior secured, non-converting debt underwritten to the likelihood of your next equity round rather than to your cash flow, typically sized at a third to half of the last round and placed while you still have 12+ months of runway.

Why does Venture debt matter to a founder?

Every dollar of equity is a dollar of dilution; debt is not. On a $150–300M exit, $5M of venture debt costs interest and a sliver of warrants where $5M of equity could cost 17% of the company. But the instrument is only available when you do not need it: lenders want 12+ months of runway, a credible syndicate, and a plan you are hitting. It is an accelerant placed alongside an equity round, never a rescue.

What are the common mistakes with Venture debt?

Trying to raise it with one month of cash left, which no lender will fund. Optimizing on rate instead of on how the lender behaves when things go wrong. Taking the loan when more runway will not produce a value inflection, so it becomes an overhang on the next round. Using counsel that does not live in venture lending and marks up standard provisions.

Venture debt

CONCEPT · LAST REVIEWED 2026-09 · SOURCED FROM 1 SESSION, JUN 2026

Venture debt is a loan to a venture-backed company that is usually cash-flow negative. The lender is not underwriting your profits; they are underwriting the probability that your investors fund the next round. The loan is senior and secured, never converts to equity, and carries a small warrant as the lender’s upside.

Why it matters

It is the cheapest capital you can get, on the condition that you do not need it.

From the room

“It’s not a tool for last resort. It’s really designed to be an accelerant.”

— Head of a venture banking practice, ~21 years in venture lending · session, Jun 2026

The rule of thumb from the session: put it in place with 12+ months of runway, alongside or shortly after an equity round, sized at a third to half of that round (“turn a $10M Series A into $13–15M”). Bank pricing was roughly Prime plus 0–1% at the time; credit funds cost more but write bigger checks and take more risk. Deal-killers named in the room: one month of cash, insider bridges propping the company, weak syndicates, big misses to plan, and heavy customer concentration.

The selection criterion is not price. Material-adverse-change and investor-abandonment clauses are broad and non-negotiable everywhere, so the question is who works with you when the plan slips. Reference-check lenders the way you would reference-check a VC.

Where founders get it wrong

Raising it too late.
Optimizing on rate.
Borrowing against a flat business.
Using the wrong counsel.

Numbers from the room

Parameter	Rule of thumb (mid-2026)
Facility size	1/3–1/2 of the last equity round
Bank pricing	~Prime +0 to +1%
Bank minimum	Rarely below $1M
Runway required	12+ months
Process	~6–9 weeks

Go deeper

Venture debt is the full playbook: bank vs. credit fund, when nobody will lend, and how to pick the lender.
Related concepts: SAFE, Customer concentration.