Venture debt

Venture debt is lending to companies in an early, expansion or late stage of growth that rely on money from investors, not on their own cash flow, to keep going. The Office of the Comptroller of the Currency (OCC) calls these "venture loans" and says they tend to have a higher risk of default than other business loans.

Who lends: banks with venture lending teams, and specialist funds such as business development companies that lend to venture-backed companies. Lenders usually work alongside your venture capital investors.

What a deal usually includes, going by one venture lender's annual report to the SEC:

• A loan or line of credit, often with a period (in that lender's case up to 24 months) to draw it, sometimes only after you hit agreed milestones.
• Interest, with that lender aiming for a yield of about 10% to 18% a year on its term loans, plus a fixed payment at the end of the loan, due even if you repay early.
• Warrants: the right for the lender to buy shares later, usually at the price your investors paid in the last round. That lender's warrants are generally worth 2% to 10% of the loan amount, so you give up a little ownership.
• A first lien on all the company's assets, often with a promise not to pledge your intellectual property to anyone else.

What banks look at, according to the OCC: your investors and how sure the next funding round is, your latest valuation, and how many months of cash you have left at your current burn rate. Loans often have a covenant on that "runway". The OCC tells banks that an uncommitted future equity raise is not a satisfactory way to repay, so expect lenders to want cash controls or other protection.