Venture debt allows companies to provide for their most vital needs, i.e. to have significant funds to delay the moment when the company will start to run out of cash. This type of financing is popular with growing start-ups who are waiting their turn for the next round. Companies specializing in ventures have started to emerge in Europe.
Venture from the 90s to the present day
Many world-renowned companies have resorted to venturing into debt, including Facebook in 2008. This form of investment appeared in the 90s in the United States, because it constitutes a serious alternative to venture capital which has interest rates more important and stricter rules. Among the big names in venture Silicon Valley Bank (SVB), Square One Bank and SaaS Capital have given funds to the world’s largest companies.
Advantages of venture
The companies that can bet on ventures are companies in full growth and which take their precautions not to run out of money, before the next fundraising, for example.
The advantage of this money is twofold.
Venture versus venture capital: differences and similarities
Venture debt is never a large part of a start-up’s equity, while venture capital often takes a larger part. With venture debt, the cost of the debt is fixed in advance while the equity can increase at any time.
Venture investors do not take part in the operation of the company as business angels would.
In general, venture debt is between venture capital and traditional bank loans.
Venture debt in Europe, tailor-made solutions
We mentioned that venture debt was much more present in America, but this practice has a bright future ahead of it. The use of artificial intelligence is particularly suitable for this group of bankers and debt specialists.