Venture Debt

Loans made to venture-backed startups by specialist lenders, typically alongside or after equity rounds and often with warrants attached.

Example

A 2,000,000 loan at 12% interest, with warrants and covenants, taken after a Series A.

It ranks ahead of all equity, so in a disappointing sale it can take a large share of proceeds before any shareholder is paid.

Warrant — A right to buy a set number of a company's shares at a fixed price before an expiry date, often issued alongside loans or other investments.
Seniority — Where a particular claim sits in the queue for payment if the borrower fails. Secured claims are paid from their collateral first, then senior unsecured claims, then subordinated ones, with shareholders last.
Covenant — A promise written into a bond contract that limits what the issuer may do while the debt is outstanding - additional borrowing, dividends, asset sales, or a minimum level of interest cover.

Every instrument answers one question differently: what happens if it goes badly — Warrants give the right to buy shares at a set price. Venture debt is a loan that ranks ahead of equity and often comes with warrants. In a poor outcome, the order of claims decides who recovers anything. (11 min)
Some companies can be funded without selling equity at all — Revenue-based financing, venture debt and grants provide capital without dilution, in exchange for repayment obligations or restrictions. They suit companies with predictable revenue more than pre-revenue ones. (11 min)