After closing a priced equity round, early-stage companies often find that their runways shrink faster than expected. Before selling additional equity and diluting the founders and existing investors even more, there is another tool worth considering: venture debt. When deployed thoughtfully, venture debt can be a valuable tool to help an early-stage company extend runway, serve as a strategic insurance policy in uncertain fundraising environments, fund discrete initiatives, or hit milestones that support a higher valuation in the next equity round. But venture debt comes with obligations and constraints that founders should evaluate carefully before signing on.
This installment of the Founders’ Toolkit provides a high-level overview of venture debt, when it should be used, and how founders should approach negotiating the terms.
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