Venture Debt Is On The Rise for Tech Startups📈

Founders, find out if debt is a viable funding option for your startup👇

In November 2020, Udacity used debt to raise $75 Million.

Why'd they include debt funding in their latest round?

🔹Debt raises capital without diluting ownership as much as VC
🔹Debt has predictable costs and a lower cost-of-capital
🔹No new valuation is required, no new board seats are (typically) given up
🔹Debt provides leverage to your business, potentially increasing the upside

But, there are drawbacks to taking on debt:

🔻Interest payments can ground a startup if revenue slows because debt is
secured by company assets
🔻Debt underwriters expect their money in 15-18 months vs. 5-8 years for most VC
🔻Debt lenders don't provide value-add like business advice, networking, and
recruiting like some VCs do.

Venture debt complements VC, but it doesn't replace it.

It's rare that a startup will be issued debt before receiving a few rounds of VC

That's because debt lenders operate at lower risk thresholds than VCs, and
therefore need to have surety that you'll pay them back.

Are you / would you consider taking on debt? Why or why not?

Comment below and let's talk alternative funding solutions👇

#founders #fundraising

Posted by Nathan Beckord on LinkedIn