Venture Debt Term Loans by Jason Garcia

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

Questions answered:

  • How is venture debt different from regular debt?
  • What are the pros and cons of venture debt?

Summary:

  • 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

Follow-up Links:

  • N/A, very beginner friendly