TL;DR - Venture debt favors the founders, but there are things to watch out for in these contracts.
Helpfulness - 5
Topic Tags - Venture Debt, VC incentives, leveraging, warrants, Investor Abandonment, Material Adverse Change
- How is venture debt different from regular debt?
- What are the pros and cons of venture debt?
- Venture debt is created when VC companies issue loans. Venture debt is often more flexible than regular debt and given to founders who already have venture funding.
- It is a great way for founders to combat the over-dilution of equity.
- Often times interest-only periods can be established, favoring the founder.
- Defines warrants, Investor Abandonment, and Material Adverse Change
- Warrants may develop into signs of confidence loss from investors, hurting the founder
- N/A, very beginner friendly