You are deciding whether to add a venture loan on top of your equity. It fits in a narrow window: within a few months of a fresh equity round, with at least 12 months of runway before the debt, to buy about 6 more months toward a milestone the next round will price (SVB). Size it near 20–40% of the last round (SVB). The lender is underwriting your investors, not your cash flow (Fred Wilson, AVC). Skip it when runway is already short or the goal is to dodge a down round. Not legal, tax, or financial advice.
Fit check: when venture debt fits
| Situation | Fits when | Skip when |
|---|---|---|
| Right after an equity round | Closed within a few months; 12+ months of runway exclusive of debt; investors with follow-on reserves (SVB) | The round was a small insider top-up and the syndicate has no reserves (session judgment) |
| Runway extension to a milestone | About 6 extra months gets you to a product, revenue, or data proof the next round will price (SVB; Kruze) | More months leave the next-round story unchanged |
| Equipment or capex | Hard assets that move you toward commercialization (SVB) | You are funding operating burn and calling it capex |
| Insurance against a slip | A draw period lets the facility sit undrawn until you need it (SVB) | The lender forces an early draw while you still hold most of your cash (Kruze) |
| Later stage, bridge to an exit | You can pay it back from a sale, IPO, or cash flow (Wilson: fan of debt late, not early) | Repayment depends on the next VC round arriving on time |
| Short runway or a looming down round | Seldom. Kruze: venture debt supplements equity and does not replace it | You cannot raise equity at all; in a down round a MAC clause lets the lender refuse further draws (Kruze) |
| Seed or pre-revenue | Possible when institutional VCs back you (SVB). SVB lists $4M+ raised in a single equity round as a common qualifier | Your money came from angels or friends and family (SVB) |
Operator judgment from FounderNexus sessions: treat venture debt as an accelerant for a company that is working. It makes a poor last resort for one that is failing. Raise it when you do not need it. That is session judgment, not a survey.
How much to borrow
| Sizing guide | Range | Source |
|---|---|---|
| Share of last equity round | 20–40% | SVB, Sep 2023 |
| Share of last post-money valuation | About 6–8% | SVB, Sep 2023 |
| Ceiling vs durable enterprise value | No more than 10% | SVB, Sep 2023 |
| Debt service vs net monthly burn | Under 25% | SVB, Sep 2023 |
| Runway the debt should add | About 6 months, on top of 12+ months organic | SVB, Sep 2023 |
| Share of last round (accounting firm view) | 20–35% | Kruze, Jun 2025 |
| Share of last round (lender term sheet guide) | 20–50% | Mercury, updated Feb 2026 |
SVB’s worked example: a $20M equity round could support $4M–$8M of debt. Amortization changes burn. SVB: a company burning $250K a month with a $5M facility amortizing over 30 months sees burn rise by more than 50% once principal payments start. Put the payment schedule into the runway calculator before you sign.
fn-content has no verified venture debt atom yet. Tracked as benchmark request: venture debt sizing as % of last equity round. Until then, cite the named lender and advisor ranges above. Do not quote a blended “market” size.
What it costs
| Cost line | What to ask | Published band |
|---|---|---|
| Interest | Fixed or floating; which index; any floor | Kruze: often 8–12%. Mercury: heavy-covenant lenders often prime + 1–3% (5–8% total); light-covenant lenders prime + 3–4% (10–14% total) |
| Term and interest-only | Months of interest-only before principal; total term | Kruze: 24–48 month terms. Mercury: 3–5 years, interest-only often 12–18 months |
| Fees and final payment | Upfront fee; final payment as a share of the loan at maturity (Mercury) | Lender-specific; get it in writing |
| Prepayment fee | Does it step down near maturity, or can you strike it (Mercury) | Lender-specific; Mercury says you may get it removed |
| Warrants | Coverage, strike price, expiry, and how much vests at signing vs draw (Kruze) | Kruze: 2–10% of loan amount; usually under 1% of the cap table. Mercury: light-covenant lenders 10–20%, heavy 0–5% |
Kruze on warrant timing: parties often split coverage half at commitment and half at draw. If you draw only part of the facility, you pay only part of the warrant.
Terms to fight at the term sheet
| Term | Risk | Ask for |
|---|---|---|
| Draw window | Kruze’s example: draw required within 6 months while you hold 20 months of cash, so you make 14 payments before your cash-out date. You borrowed your own money | A long forward commitment; draw with about 3–6 months of runway left (Kruze) |
| MAC and funding MAC | The lender can declare default, or refuse the next tranche, on a broad “material adverse change” (Kruze) | Strike it, or define it narrowly with carve-outs for market and industry downturns (Kruze) |
| Investor abandonment | Default if the lender judges your investors will not keep funding you (Orrick) | Objective triggers. Hellman prefers this to a MAC because your investors control it |
| Financial covenants | A missed revenue covenant is a default; Kruze’s sample sets one at 60% of the board plan, tested monthly | No covenants early, or levels you clear in a bad quarter (Kruze; Mercury) |
| Litigation and contract defaults | Small disputes trip a default | A dollar threshold; Kruze’s example is $150,000–$200,000 |
| Debt already on the balance sheet | New investors may balk at their equity repaying old debt (SVB) | Size so the next lead sees a small, current loan |
Hellman says lenders seldom call a subjective default, yet most insist on at least one in the documents. Kruze on down rounds: equity investors often ask the lender for 6–12 months more interest-only, and lenders that foreclose may recover only 10–20 cents on the dollar, so both sides tend to restructure.
Bank or credit fund
Mercury’s comparison: banks tend to price lower and carry heavier covenants and reporting; venture debt funds price higher with lighter covenants and more warrant coverage. SVB names the biggest founder mistake as picking a lender on price and loan size alone. Session judgment from FounderNexus matches: reference-check a lender through portfolio companies that went through a bad stretch with them, and hire counsel who lives in venture lending.
Sequence: from equity close to first draw
Venture debt after an equity round
- Open the conversation during the equity raise. SVB: start talking to lenders while you work the equity term sheet; your position is strongest right after close.
- Write the milestone and the draw month. Name what the extra months buy. Model debt service against net burn (SVB: under 25%) in the runway calculator.
- Collect competing term sheets. Mercury: at least two before serious negotiation. Kruze: startups often approach 2–5 lenders.
- Bring counsel before you sign the term sheet. Negotiate the draw window, MAC, covenants, warrants, and prepayment while you still hold the cards (Orrick; Kruze).
- Reference-check the lender and tell the board. Ask portfolio founders how the lender acted after a miss (session judgment). Kruze: plan about 8–12 weeks from outreach to funding.
- Draw on plan and re-measure. Track runway with debt service included. If the milestone slips, call the lender before the next covenant test (Kruze: keep lender communication open).
Mistakes that make debt expensive
Borrowing when runway is already short. Kruze and SVB both say raise it from strength. Short-runway paths live on when runway runs out.
Using debt to avoid a down round. In a down round the MAC lets the lender stop funding, and drawn debt becomes a restructuring problem (Kruze).
Accepting an early mandatory draw. You pay back your own cash before the cash-out date (Kruze).
Choosing on headline rate. Warrants, final payments, and prepayment fees change the real cost. SVB calls rate-and-size shopping the biggest mistake.
Stacking debt the next lead will repay. SVB: too much debt can create problems with the next equity round.
Market context: PitchBook-NVCA counted a record $62.4B of US venture debt deal value across 943 deals in 2025, down from 1,168 deals in 2024. PitchBook credits larger institutions and bigger checks, including AI infrastructure loans. A record year does not set your terms.
Pair with fundraising and finance siblings
Pick Seed paper on SAFE vs priced round. Score Series A readiness on when to raise Series A. Watch efficiency while debt service runs with burn multiple vs Rule of 40. Orient the rest of the raise from the fundraising hub.
Sources
- Silicon Valley Bank (First Citizens), Venture Debt Amount: How Much Should Startups Raise? — 22 September 2023. 20–40% of last equity round; about 6–8% of last valuation; no more than 10% of durable enterprise value; debt service under 25% of net burn; about 6 months added on top of 12+ months organic runway; $250K burn / $5M / 30-month amortization raises burn more than 50%.
- Silicon Valley Bank, Venture debt financing for startups — Product page, read 5 October 2026. $20M round → $4M–$8M example; qualifiers include $4M+ raised in a single equity round and 12+ months runway exclusive of debt; raise shortly after an equity round.
- Silicon Valley Bank, What is venture debt? Answering startups’ common questions — Pricing components (interest, origination fee, warrants); start lender talks during the equity term sheet; draw periods and undrawn debt as insurance; seed eligibility depends on investor base; too much debt can hurt the next round; biggest mistake is choosing on price and size.
- Kruze Consulting, Key Insights into Venture Debt for Startups — 12 June 2025. 20–35% of last round; 24–48 month terms; interest often 8–12%; warrants usually under 1% of cap table; 12–18 months runway when you apply; 8–12 weeks to funding; 2–5 lenders; supplement, not substitute, for equity.
- Kruze Consulting, Warrant Coverage in Venture Loans Explained — 19 December 2023, updated 1 August 2024. Warrants 2–10% of loan amount; split commitment vs draw; strike, expiry, and share count.
- Kruze Consulting, Don’t borrow your own money — 5 June 2022, updated 1 August 2024. Forced draw at 6 months with 20 months of cash → 14 payments before cash-out; draw with about 3–6 months of runway left; skip debt without a forward commitment.
- Kruze Consulting, What Happens to Venture Debt in a Downround? — 7 January 2024, updated 1 August 2024. MAC lets the lender refuse draws; investors ask for 6–12 months more interest-only; foreclosure recovers about 10–20 cents on the dollar.
- Kruze Consulting, Material Adverse Change as Event of Default in Venture Debt — 6 February 2018, updated 27 June 2025. MAC and funding MAC; strike or narrow; carve out market downturns.
- Kruze Consulting, Venture Lending Common Events of Default — Bryan Long, 23 October 2025. Covenant, investor-abandonment, MAC, litigation ($150,000–$200,000 threshold example), and change-of-control defaults.
- Kruze Consulting, Venture Debt Term Sheet Analysis — Sample term sheet with a trailing revenue covenant at 60% of the board-approved plan, tested monthly.
- Mercury, How to read a typical venture debt term sheet — 3 January 2023, updated 3 February 2026. 20–50% of previous round; 3–5 year duration; interest-only often 12–18 months; final payments and prepayment fees; light vs heavy covenant bands (prime + 3–4% / 10–14%; prime + 1–3% / 5–8%; warrants 10–20% vs 0–5%); collect at least two term sheets.
- Orrick, Venture Debt Default Provisions: What Every Company Should Know Before They Sign on the Dotted Line — 14 June 2018. Spinta Capital with Orrick partner Dolph Hellman. Term sheet stage is peak leverage; most lenders insist on at least one subjective default (MAC or investor abandonment); lenders rarely rely on them.
- Fred Wilson, Financings Options: Venture Debt (AVC) — 25 July 2011. Lenders underwrite the VC syndicate; not a fan early; a fan late as a bridge to sale, IPO, or acquisition when you can pay it back.
- PitchBook, AI and a new scale of startups took US venture debt funding to another record — Jacob Robbins, 2 February 2026. $62.4B US venture debt deal value in 2025 across 943 deals (vs 1,168 in 2024), per PitchBook-NVCA Venture Monitor.
- FounderNexus session — Operator judgment: debt accelerates a working company and does not rescue a failing one; raise it when you do not need it; pick the lender by behavior after a miss; reference-check through portfolio companies; use counsel who does venture lending. Not a survey.
Related
- Fundraising
- When runway runs out
- SAFE vs priced round
- When to raise Series A
- Burn multiple vs Rule of 40
- Runway calculator with hiring plan
Founders who have drawn, renegotiated, and repaid venture debt will pressure-test your draw month, covenants, and lender shortlist in a FounderNexus session.