Venture Debt Uses – The Insurance Policy
Venture debt can act as an insurance policy. It provides an extra cushion in the event that a company needs more time to get to its next milestone.
Take the company burning $250K per month that raises $3 million to fund 12 months of runway. If they experience a low-revenue quarter, the company’s runway could drop from 12 months to 9 months.
The insurance aspect of venture debt loans can help.
A venture debt loan has no financial covenants, meaning the company can operate knowing that the borrowed cash is there to spend until the next round of funding.
Taking venture debt at the time of an equity round provides the company peace of mind knowing that it has enough operating cash to get through a period of low revenue. In this case, the original plan for 12 months of runway is protected by venture debt.