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High-Growth Mindset: 3 Tips for Getting Started with Venture Debt When preparing for your next phase of growth, accessing the right type of funding from the right lender can make all the difference.


In the early days of your business, bootstrapping was like second nature. You found ways to stretch every dollar.

But as you continue to scale, new options for financing your business become viable. Funding for things like customer acquisition, new equipment, facilities, or M&A.

This is where venture debt financing may make a huge difference. Venture debt is a type of financing that's offered by banks including Silicon Valley Bank, a division of First Citizens Bank, and other lenders, that is designed for early-stage, high-growth companies that have venture capital backing.

While you may consider more traditional debt such as term loans or lines of credit, those options typically require you to have sizeable assets and a history of positive cash flow. Venture debt, meanwhile, focuses more on the company's potential, the founder's history or background in the space, and future access to additional equity.

"Let's say you're a fast-growing startup and you're producing promising results, but you just don't have the runway to reach the next milestone. Venture debt can get you the capital you need to keep everything ramping without forcing founders and current shareholders to give up a portion of their stake in the company unnecessarily," says Marshall Hawks, head of relationship management for SVB's Northern California Technology Banking practice.

1. Secure venture debt before you need it.

As an owner, the last thing you want to do is panic and scramble for money when you're working hard on something big. You don't need to wait until you're running out of cash to raise venture debt.

"Securing venture debt on the heels of a successful equity round tends to increase your bargaining power and can get you more favorable terms," Hawks says.

Instead, consider pursuing venture debt when your creditworthiness is high or when valuation trends are favorable. "You want to be sure to structure the loan with a longer draw period (the life of the loan) that allows you to wait to receive the capital until you need it — which could be 12 to 18 months down the road," Hawks explains.

2. When it comes to venture debt spending, always be goal oriented.

Lenders will want to know that you have a specific plan for how to put capital to use and what goals it will help your business achieve. As noted above, one of the most appropriate and effective uses of venture debt is to extend the runway of a startup so it can hit another meaningful inflection point or business milestone, that should increase valuation and make a successful follow-on equity round even more likely.

"It's not a great tool for giving a struggling business a few months of life support," Hawks says. "You also don't want debt to get in the way of a successful round of equity fundraising."

Owners should think specifically about how they plan to use the capital raised from venture debt and how doing so will help further the company's growth. When managed correctly, it can even help you enter your next equity round with a higher valuation.

When meeting with your lender and explaining your plan, Hawks recommends being completely honest about any challenges you're facing. "If you give your lender the full picture, you can draw on your lender's expertise for help as you solidify your financing objectives," he says.

3. Remember, the right lender can make a big difference.

A lender should act as more than simply a source for cash. The best lenders will serve as a trusted financial advisor as well, helping you achieve the goals you've set out to accomplish.

According to Hawks, the ideal lender should fulfill the following criteria:

  • Can continue supporting you as you continue to grow.
  • Commit to the success of your business, supporting your efforts with connections to other innovators, potential investors, and trusted service partners.
  • Take the time to understand your specific business challenge and help you determine the appropriate amount of funding.
  • Have a great track record of supporting successful businesses. Dig around beyond direct references as well.

"Due diligence with venture capital lenders should work both ways to ensure you wind up in a long-term, fruitful partnership," he says.

Click here to learn more about venture debt and how SVB can help your high-growth startup get the financing it needs to get to the next level.

This material, including without limitation to the statistical information herein, is provided for informational purposes only. The material is based in part on information from third-party sources that we believe to be reliable but which has not been independently verified by us, and, as such, we do not represent the information is accurate or complete. The information should not be viewed as tax, accounting, investment, legal or other advice, nor is it to be relied on in making an investment or other decision. You should obtain relevant and specific professional advice before making any investment decision. Nothing relating to the material should be construed as a solicitation, offer or recommendation to acquire or dispose of any investment, or to engage in any other transaction.

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