Introduction

In the landscape of growth-stage financing, venture debt often appears alongside venture capital as a funding tool for start-ups and scale-ups. While Kingsbury & Partners does not originate or manage venture debt strategies, we believe it is important for investors and business leaders to understand how it works, why it is used, and how it differs from the private credit strategies we focus on.

Defining Venture Debt

Venture debt is a form of lending offered to VC-backed companies. Unlike equity financing, which dilutes ownership, venture debt is structured as a loan — providing capital that must be repaid with interest.

It is usually offered by:

  • Specialist venture lenders
  • Certain banks with innovation arms
  • Occasionally venture capital firms themselves

The aim is to complement equity rounds, extending runway or funding specific initiatives without further dilution.

How It Works

Venture debt transactions typically include:

  • Secured Loans: Often backed by company assets such as IP, receivables, or equipment.
  • Repayment Schedules: Two to four years, with regular instalments.
  • Interest Costs: Higher than traditional bank loans, reflecting the risk.
  • Warrants: Lenders may receive equity warrants, offering modest upside if the company succeeds.

Why Companies Use Venture Debt

  • Preserve Equity: Avoiding additional dilution of ownership.
  • Extend Runway: Gaining more time between equity rounds to reach milestones.
  • Fund Growth: Supporting expansion, hiring, or product development.
  • Optimise Valuation: Raising equity later, ideally at a higher valuation.

Investor Considerations

For investors, venture debt is a niche part of the private credit landscape. It offers:

  • Attractive Yields (via coupons and warrants).
  • Shorter Duration than traditional private equity.
  • Equity-Linked Upside with contractual repayment obligations.

But it also carries risks:

  • Dependence on a company’s ability to raise further equity.
  • Illiquidity and limited secondary markets.
  • High borrower failure rates in early-stage ecosystems.

Why Kingsbury & Partners Takes a Different Approach

At Kingsbury & Partners, our expertise lies in asset-backed private credit strategies such as:

  • Receivables Finance
  • Credit-linked notes (CLNs)
  • Structured private credit allocations via NBFIs

While venture debt is an important part of the broader private markets conversation, we believe our focus on asset-backed lending and risk-adjusted, contractual credit exposures provides clients with greater visibility, governance, and downside protection than venture debt typically offers.

Conclusion

Venture debt plays a role in financing high-growth companies, particularly when combined with venture capital. It allows businesses to raise non-dilutive capital, extend runway, and accelerate growth.

However, for investors, it remains a specialist niche with unique risks tied to early-stage company performance. At Kingsbury & Partners, we focus on private credit strategies with defined collateral, transparent cash flows, and institutional governance — but we continue to monitor developments in venture debt as part of our broader insights into private market financing.