Venture debt

LAST REVIEWED 2026-08 · SOURCED FROM 1 SESSION, JUN 2026

TL;DR

Venture debt is senior secured, non-converting debt underwritten to the likelihood of your next equity round — an accelerant, not a rescue. Put it in place with 12+ months of runway, sized at a third to half of your last equity round. Bank debt runs roughly Prime +0–1%, dramatically cheaper than equity dilution. Pick the lender on how they behave when things go wrong, not on price — the material-adverse-change clauses are broad and non-negotiable everywhere.

What it is and why it’s cheap

Venture debt is enterprise-value lending: the lender is not underwriting your cash flow (most borrowers are cash-flow negative) but the probability that your investors fund the next round. The equity component is only a small warrant; the loan itself never converts.

The dilution math is the whole argument. On a $150–300M exit, $5M of debt costs interest and a sliver of warrants; $5M of equity at a typical round could cost 17% of the company.

“Every dollar of equity that you raise is another dollar of dilution.”

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

When it works — and when nobody will lend

The counterintuitive rule: you raise venture debt when you don’t need it. It is a preemptive bridge, placed alongside or shortly after an equity round, with 12+ months of runway still in the bank.

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

— Same session, Jun 2026

Deal-killers named in the room: one month of cash left, insider bridge rounds propping the company, weak or unknown investor syndicates, big misses against plan, and heavy customer concentration. Lenders also won’t be the biggest check at the table.

One caution for the modest-growth case: debt sitting in its amortization cycle against a flat business becomes an overhang on the next round. If more runway won’t produce a value inflection — near-term customers, a data milestone — don’t take the loan.

Sizing and pricing

Parameter	Rule of thumb (as quoted, mid-2026)
Facility size	1/3–1/2 of the last equity round (“turn a $10M Series A into $13–15M”)
Bank pricing	~WSJ Prime +0 to +1% (~7–7.25% at the time)
Bank minimum	Rarely below $1M
Process	~6–9 weeks: intro → diligence → term sheet → docs → funding
Early-stage covenants	Usually no financial covenants

Bank vs. credit fund

Banks (regulated, deposit-funded): cheaper, don’t force you to draw, and bring relationship value — including investor introductions. Credit funds: pricier, usually force a day-one draw, but take more risk, write bigger checks, and can layer behind a bank ($5–10M bank facility plus $20M fund tranche).

Two practical notes from the room: use tech-savvy counsel — firms that don’t live in venture lending mark up standard provisions and inflate the bill — and expect broad material-adverse-change and investor-abandonment clauses that are effectively non-negotiable at every lender.

Which is why the selection criterion is trust, not rate:

“You’re optimizing on the debt side… on who can work with you if shit hits the fan.”

— Same session, Jun 2026

Reference-check lenders the way you’d reference-check a VC: find portfolio companies that went through a down stretch with them and ask what happened.

Sources

One session (Jun 2026) with the head of a bank venture-lending practice — ~26 years in banking, ~21 in venture debt, including years at the industry’s founding institutions.