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Venture Debt: A special kind of debt typically seen in the high-growth tech industry that involves extending the cash life of a company. This debt is paid in full (principle and interest), unlike convertible debt, which converts into equity during the next financing round.
Venture Debt Variables:
- Principal: the amount you can withdraw
- Interest rate: annual rate paid
- Interest-only period: time frame where you only pay back the interest rate
- Amortization period: the time frame where you pay back BOTH the principal and interest rate
- Covenants: any requirements the firm puts on your business
The companies that raise venture debt will need to be able to convince the debt firm that they will be able to cover the amount loaned within a prescribed time period (by growth or acquisition). This capability must be demonstrative up front, as most start up companies lack the needed collateral to effectively procure the loan.
Read the full article “The Mysteries of Venture Debt Revealed” here.