Venture debt is a type of debt financing for early-stage companies or start-ups that have venture backing – it can be complementary to raising funds from equity financing. Funds can be raised from banks or non-bank lenders. Venture debt allows start-ups to raise capital by avoiding or postponing dilution, especially between two rounds of funding.
Unlike conventional debt, venture debt does not necessarily require collateral (since start-ups do not generally own any assets that can be used as such) or positive cash flows. But the cost of venture debt is higher than regular debt.
Usually, venture debt carries a regular interest payment, requires a fee to be paid to process the loan, as well as issuing warrants to venture debt providers