Venture debt is a valuable financing alternative for rapidly scaling startups aiming to grow without giving up additional equity. However, while venture debt can be attractive, the process of securing it is often nuanced and complex—and that’s where Kruze Consulting plays a key, behind-the-scenes role.
The venture debt market has grown significantly in recent years, with increasing deal volume and value, as more startups seek alternative funding options outside traditional bank loans. Venture capital investors are also playing a larger role in supporting startups through both equity and debt financing.
As a trusted financial advisor to over 800 venture-backed startups, Kruze is an industry leader in helping companies prepare for and address the venture debt process. From delivering investor-ready financials to connecting founders with top venture debt providers, we help startups take the right steps toward raising smart, non-dilutive capital. Raising capital is a critical process for startups, and Kruze supports founders throughout their fundraising journey.
What Is Venture Debt?
Venture debt is a form of debt financing extended to startups that have already raised equity from venture capital firms. Venture-backed companies, especially early-stage companies, are the typical recipients of venture debt, as they seek non-dilutive capital to support growth.
It’s typically used to:
- Extend runway between equity rounds
- Finance equipment or infrastructure
- Accelerate growth while preserving ownership
Venture debt is often utilized by early-stage companies that may not qualify for a traditional loan due to limited cash flow or assets.
Although venture debt carries founder-friendly characteristics, it comes with specific financial obligations and should be approached strategically. Compared to a traditional loan, venture debt generally requires less collateral and is more accessible to companies with limited cash flow, making it suitable for startups that do not meet the strict requirements of conventional lenders.
A standard venture debt term sheet will include:
- Loan amount and interest rate
- Warrant coverage (equity upside for the lender)
- Covenants and performance milestones
- Prepayment penalties
- Maturity and repayment terms
- Considerations for equity funding and equity dilution, as venture debt is often structured to minimize dilution for existing shareholders compared to raising additional equity.
These elements can materially impact your company’s financial projections and long-term flexibility, which is why expert support is critical.
Prominent providers like Silicon Valley Bank and other financial institutions play a key role in the venture debt market.
Explore a Sample Venture Debt Term Sheet →
What’s the Venture Debt Process?
Timing is important when you’re seeking a venture loan. Startups should normally apply for venture debt shortly after closing an equity round, when you’ve got 12-18 months of runway and strong investor momentum. That maximizes your negotiating leverage and lets you get better terms. Venture debt should be used proactively, not as a last resort. Putting venture debt in place early, when you’re not under financial pressure, gives you flexibility, letting your debt function as a strategic reserve to extend your runway or hit key milestones.
The process of placing venture debt typically follows this five-step sequence:
- Assess readiness – Are your finances solid? Do you have strong KPIs and existing VC backing? Consider your cash flows, as well as the involvement of venture capitalists and VC investors, since these are critical factors in qualifying for venture debt.
- Connect with lenders – Engage with aligned venture debt providers.
- Negotiate the term sheet – Understand core terms like warrant coverage, internal rate of return (IRR), and financial covenants.
- Present to credit committees – Lenders evaluate your business based on risk and growth trajectory.
- Close the deal – Sign agreements, supported by experienced legal counsel.
Kruze Consulting plays a central role in steps 1, 2, and 4, ensuring your startup is well-positioned to succeed with the right funding partner.
Once your venture debt is in place, you’re ready to begin drawing down funds. This will typically happen when you’ve got three to six months of runway remaining. Drawing down too soon means you’ll start paying interest before you actually need the capital, but waiting until the last minute is risky, too. Lenders may refuse to fund the loan if your startup’s financial situation gets precarious. Plan to access your drawdown at a point when your company still has a solid cash position to maximize your flexibility.
Kruze Consulting’s Role in the Venture Debt Process
At Kruze, we are not a lender or broker. However, we play a powerful enabling role by supporting clients in two key areas: understanding venture debt and helping our portfolio companies navigate the landscape of venture debt lenders and providers.
1. Referrals to Quality Venture Debt Providers
We work with hundreds of venture-backed startups and maintain trusted relationships with leading venture debt providers. Kruze helps you identify lenders that align with your growth stage, sector, and capital strategy. You should speak with several venture debt providers to find one that’s a good fit for your startup.
Think of it as “shopping for a mortgage”—each lender has different structures, risk tolerances, and expectations. Our experience helps guide you toward the options that make the most sense for your business.
2. Delivering Investor-Ready Financials
Perhaps the most critical component of the venture debt strategy is presenting high-quality, reliable financial documentation. Our team ensures your startup is prepared to pass rigorous credit committee reviews by supplying:
- GAAP-compliant financial statements
- Balance sheet as a key financial statement
- Strategic financial projections tied to your business model
- Detailed IRR schedules modeling Internal Rate of Return
- Responsive, accurate answers to financial due diligence questions
Lenders and financial institutions, including other financial institutions, review the company’s assets and assess whether the business has positive cash flow as part of their due diligence.
Lenders need to see evidence of operational discipline and financial predictability—Kruze helps you deliver exactly that.
Understanding Key Venture Debt Terms
Before engaging in term sheet negotiations, founders should understand several core concepts: venture debt covenants, interest rates, and how venture debt relies on structures like warrants and interest payments, which differ from more traditional debt and traditional bank loans.
Warrant Coverage
Lenders typically request warrant coverage—5% to 20%—which grants them the right to purchase company stock at a fixed price. While this helps align lender incentives with your success, it also introduces potential dilution if not carefully negotiated.
Internal Rate of Return (IRR)
IRR estimates the effective annual yield a lender will earn, factoring in interest, fees, and warrants. A higher IRR means a more expensive loan. At Kruze, we help model IRR schedules so founders can understand the full cost of capital and adjust deal structures accordingly.
Credit Committees
After initial discussions, your application moves to the lender’s credit committee—a critical step where your financials are rigorously analyzed. Having Kruze prepare and support your package dramatically increases your likelihood of approval.
Legal Counsel Is Essential
Kruze does not provide legal advice—but we strongly recommend engaging an attorney who specializes in startup financing. There are often two or three significant terms in contention which must be negotiated with lawyers. The lawyers typically do a great job, and we strongly recommend using experienced counsel.
Whether it’s negotiating covenant terms, optimizing warrant coverage, or reviewing prepayment clauses, your attorney plays an essential role in protecting your interests.
Why Work with Kruze?
Founders choose Kruze because we understand the accounting and financial mechanics behind placing venture debt better than anyone. Our clients rely on us to:
- Introduce them to reputable venture debt providers
- Prepare clean, strategic financial projections
- Support them through the venture debt process with speed, accuracy, and expertise
With Kruze, you don’t just look ready—you look investable.
Final Thoughts
Venture debt can be a strategic and cost-effective component of your capital stack. But it’s only powerful when approached with clarity, discipline, and the right advisors.
Kruze Consulting helps you navigate the venture debt journey with confidence. From precision financials to vetted introductions, we provide the backbone for successful debt placement.
Disclaimer: This blog is presented for informational purposes only and should not be considered legal or investment advice. Startups considering venture debt should consult with an experienced attorney and CPA.
Ready to Discuss Your Venture Debt Options?
If you’re asking “How do I get venture debt?” the answer starts with strong financials and expert guidance. Contact Kruze Consulting today to see how we can support your venture debt strategy and help you secure the right financing—at the right time.
