Venture debt eligibility & fit FAQs
Everything you need to know about revenue requirements, SaaS metrics, and startup qualification.
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Explain venture debt like I’m a founder, not a banker.
Venture debt is a way to finance your business with little or no dilution. Instead of selling equity in exchange for capital, you receive funding and give other forms of consideration. For example, you might grant security over assets you own, pledge a portion of future revenues for an agreed period, or give the lender a lien on the company to secure loan repayment.
The easiest way to think about venture debt is as different versions of “get money now, pay it back later.”
Venture debt can be used tactically, for example, to improve cash position (liquidity) or to fund marketing ahead of a priced equity round. It can also be part of a longer-term strategy, building a relationship with lending banks or debt funds. Over time, this gives you more optionality to choose between raising additional equity or taking on more debt, depending on market conditions and your company’s progress.
Can Series A Startups Take Debt?
Series A funding and/or $1M in revenues is often the entry point to the venture debt ecosystem, although many lenders also provide financing to earlier-stage, bootstrapped or pre-revenue companies.
The Series A round usually marks the completion of the main product-market fit stage, when many early-stage uncertainties are resolved. At this point, the lower credit risk makes the company a better fit for lenders.
Botstrapped or angel-backed companies can often raise debt if they demonstrate strong revenue growth, solid runway and a clear path to profitability.
Is Venture Debt Only for VC-Backed Companies?
No. While a few financing schemes are exclusively for VC-backed companies, many venture debt schemes do not require VC or institutional investors.
Venture loans are often provided to companies that have raised VC funding within the past 12 months. These companies typically have a high burn rate but a relatively long runway. A VC presence helps lenders by demonstrating that the company has undergone professional due diligence and is managed with oversight from experienced VC-appointed board members. Companies with strong VCs on their cap table are also generally perceived as more likely to raise future equity, which reduces credit risk.
Other financing schemes may also favor “fundable” companies, those likely to attract future equity but VC backing is not required.
At the same time, some lenders are agnostic to the company’s cap table. They focus instead on the company’s ability to succeed without external funding, relying on factors such as strong growth, profitability, unit economics, or valuable assets. For these lenders, future fundability is not a key requirement.
Can venture debt be a good solution for non-software companies, such as hardware, medical devices, or commerce?
Yes. While the last decade has seen many lenders focus on software and online SaaS companies, there are also numerous lenders that target hardware, production lines, sensors, robotics, IoT devices, medical devices, and commerce.
These lenders can offer financing which is tailored to the business and financial profiles of their clients. They are accustomed to high fixed costs in production or lower gross margins in consumer goods or hardware businesses.
Is ARR growth more important than profitability?
In general, if you are growing fast and have sufficient runway to reach profitability, then current growth can be more important than current profitability. However, if you are already profitable, your growth rate is less critical, as long as you have enough cushion to service your debt.
Lenders ultimately need to be confident that you can repay the debt on time. Each company has a different risk profile and set of KPIs, which is why underwriting is as much an art as it is a science. Among key parameters are runway, growth rate, profitability, and future fundability, or the trade-offs among these factors.
What leverage do SaaS companies usually get?
For VC-backed companies, financing size is often less directly tied to revenue. For example, some venture lenders may provide financing of up to 10x revenue, or even extend significant facilities to pre-revenue companies with strong VC backing.
For other companies, a common rule of thumb is that debt should not exceed 50% of ARR. This ratio is dynamic: prior to 2022, higher leverage levels were more common due to lower perceived credit risk in the market. Today, some lenders limit leverage to no more than 30% of ARR.
How much runway do lenders expect?
Typically, lenders expect to see a minimum of 9–15 months of cash runway. This cash position, together with the new financing, could often be sufficient to cover the loan period and/or, with healthy growth and an efficient business model, bring the company to profitability.
There are also specialty lenders that focus on runway-extension financing. These lenders may be willing to work with companies that have as little as 3-6 months of runway. This type of financing is usually shorter-term and more expensive.
What are the Venture Debt Underwriting Criteria?
The underwriting criteria of a venture debt deal, often referred to as the lender’s “credit box”, consist of a combination of financial and business parameters. Each lender applies a different set of criteria, sometimes including 50–60 distinct parameters, depending on its target companies and the financing products it offers.
Key parameters typically include:
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Company stage: revenue level, funding rounds raised, number of employees, and related indicators
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Ownership structure: presence of VCs, individual investors, strategic investors, private equity funds and others
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Core business model: software, hardware, marketplace, devices, and similar categories
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Customer base: number of customers, customer type, geographic distribution, concentration, and retention
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Revenue model and collection timing
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Gross margin and unit economics
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Fundability potential: the likelihood of raising additional equity in the future
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Growth rate
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Financial strength: cash balance, runway, assets, existing debt, receivables, and overall balance-sheet health
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General factors: place of incorporation, board composition, strategic partnerships, banking relationships, and similar considerations