Venture Debt: When (and When Not) to Take It
Written by Paul Jung, CFA
Curated by Rubric Financial
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What Venture Debt Actually Is
- Venture debt is term debt provided to venture-backed startups, typically alongside or shortly after an equity round. Common amount: 25-35% of the most recent equity round size.
- Structure: 3-4 year term, monthly interest payments during an initial interest-only period (6-12 months), then principal + interest amortization for the remainder.
- Pricing: rate of roughly the prime rate + 2-4% (currently ~10-13%), plus warrant coverage of 5-15% of the loan amount (equity kicker to the lender).
- Major providers: SVB (now under First Citizens), J.P. Morgan, Wells Fargo, Bridge Bank, TriplePoint, Hercules Capital, WTI, City National, plus newer entrants like Brex, Mercury, Arc, AltLine.
- Post-2023 SVB collapse: the market is still active but the underwriting bar is higher and pricing is wider than pre-2023. Deals close, but slower.
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GlossaryConvertible Note
Debt instrument that converts to equity at a future priced round; includes a valuation cap, discount, interest, and maturity date.
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Mutual fund holding short-term, highly liquid debt (T-bills, commercial paper, repos) targeting stable $1/share value plus yield.
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