Venture debt is a form of debt financing for startups and emerging companies. It typically involves lending money to these companies with the expectation of a return on investment in the form of interest payments and potential equity. Unlike traditional debt financing, venture debt lenders are typically more flexible in their lending terms, including interest rates, repayment schedules, and collateral requirements.
Venture debt is often used as a complement to equity financing, allowing companies to access additional capital while minimizing equity dilution. It can also be used to finance specific projects or acquisitions, or to bridge the gap between rounds of equity financing.
Venture debt is generally offered by specialized lenders who have expertise in working with startups and emerging companies. These lenders may also offer additional value-added services such as introductions to potential customers or investors.
However, venture debt can also be risky for both the lender and the borrower, as it typically involves higher interest rates and collateral requirements than traditional debt financing. It's important for startups to carefully consider their financing options and work with experienced advisors before pursuing venture debt.