There are narrow and broad definitions of venture debt. The term “venture debt” or “venture lending” was originally used in the 1970’s to refer to equipment financing (venture loans and venture leasing) provided to early-stage companies. These startups needed to acquire physical assets, such as computer hardware or life sciences laboratory equipment, but lacked the cash flow for traditional debt financing.
In the early 1980’s, lenders such as Silicon Valley Bank (SVB) created a new type of venture debt financing. Generally, they did not require physical assets nor cash flow. However, they focused on providing loans to startups backed by well-known venture capital firms. The loans were structured to complement the equity provided by the venture capital firms, and were essentially secured by the enterprise value of the startup and the expectation that the venture capital investors would continue to fund the startup in subsequent equity rounds.
During the low-interest rate environment since the Great Recession of 2007-2009, institutional investors have been aggressively seeking out higher yield lending opportunities. Venture debt caught their attention, which has led to a tremendous increase in the number of lenders and types of loans in the market.
This expansion has been so broad that the term “venture debt” and its common definitions are much too narrow. As a result, some industry participants and observers have begun to use the term “growth debt” instead of “venture debt.”
At Find Venture Debt, we agree that “growth debt” has become a more appropriate term as the market has evolved. However, we continue to use “venture debt” as an umbrella term for a broad range of non-dilutive and minimally-dilutive funding since it’s more commonly recognized.
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