If you ask someone to name a venture lender, the odds are very high they will say Silicon Valley Bank, Square 1 Bank, or one of a few others (if they can name any at all). This narrow view of venture debt persists despite the tremendous increase in the types of loans and number of lenders in the market.
Financing innovations such as the MRR line of credit (based on monthly recurring revenue) and revenue-based financing have broadened the pool of qualified borrowers. In addition, the entry of business development companies (BDC), hedge funds and other institutional investors into the market have increased the pool of available capital.
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.”
What do these changes mean for potential borrowers?
The well-known venture debt providers still offer a low-cost alternative to raising equity. However, if your company does not meet their lending criteria or needs more flexible borrowing terms, there are many minimally-dilutive or non-dilutive funding alternatives.
* Generally, venture debt is not available for companies at the idea-stage or seed-stage. Exceptions include pre-revenue life science companies backed by well-known venture capital firms and SaaS companies with at least $200,000 in annual revenue.