Founders often frame the funding question as a choice: raise venture capital, or find another way. It is worth setting that framing aside, because it misses one of the most useful tools available to a growing, venture-backed business. Venture debt is not an alternative to venture capital so much as a partner to it. Used well, the two work together, and the combination can achieve more than either alone.
This is a guide to how venture debt and venture capital fit together:
It is written for the founder or CFO of a venture-backed company weighing how to fund the next stage of growth.
Venture debt is a form of borrowing designed for venture-backed, high-growth companies. It is a specialised part of the private credit market, aimed at the businesses traditional lenders find hard to serve. That means companies that are fast-growing, often not yet profitable, and investing ahead of revenue.
It usually takes the form of a growth capital loan, arranged over three to five years. It often carries an interest-only period at the start, to protect cash flow while the business grows into the facility. What sets it apart from an ordinary loan is who it is for and how it is assessed. A venture debt provider lends against the trajectory of a venture-backed business and the confidence of its investors. That is different from the profits or hard assets a bank would look for.
The key point is in the name. It is debt, not equity. You repay it, and in return you do not give up ownership to raise it.
Venture capital and venture debt do different jobs, and understanding the difference is the whole point.
When you raise venture capital, you sell a share of the company. The money does not have to be repaid, and the investor shares the risk. But you give up ownership and some control, at whatever valuation the round is struck at. It is the right tool for funding the core growth of the business, and for bringing in investors whose backing and expertise matter.
Venture debt does something narrower and complementary. It provides capital without taking equity, so it funds growth without diluting the founders or the existing investors. That single difference is what makes it useful alongside a round rather than instead of one:
Equity funds the journey. Debt can make the journey go further on the same amount of ownership given up.
The contrast is easiest to see side by side.
| Venture capital (equity) | Venture debt | |
| Ownership | You sell a share of the company | No equity given up |
| Repayment | Not repaid | Repaid over the term |
| Cost | Dilution, and a share of future value | Interest and fees, plus usually a small equity element |
| Risk | Investor shares the downside | You carry the repayment obligation |
| Control | Some given up, board and consent rights | Little to no control given up |
| Best for | Funding core growth, bringing in backers | Extending runway, reducing dilution, topping up a round |
Neither column is better than the other. They do different jobs, and the point of this guide is that most venture-backed businesses are best served by using them together.
The most valuable thing venture debt does is buy time, and in a venture-backed business, time is measured in valuation.
Each equity round is priced on where the business has got to. Raise when you are further along, with more revenue, customers and proof, and you raise at a higher valuation. That means you give up less of the company for the same money. Venture debt helps a business get further along before its next round by extending the runway the last round provided.
The effect on ownership can be considerable. One founder we worked with put facilities in place that let the business delay its next equity round by around a year. They retained something like an additional 15% of the company as a result. That is the arithmetic of venture debt at its best. A period of non-dilutive capital, used to reach a stronger position, so the next raise is done on better terms.
Venture debt is not right for every company or every moment. It suits particular situations well.
Alongside or soon after an equity round:
Venture debt usually sits on top of an equity story, so it is most available to companies that have raised, or are raising, venture capital.
To extend runway to a clear milestone:
It works best when there is a defined next step, a revenue target, a product launch, a metric that the extra time will help the business reach.
When growth is strong, and the path is visible:
Lenders back trajectory and investor confidence, so a business growing well with supportive backers is the right candidate.
When dilution is a live concern:
For founders and investors focused on ownership, funding part of the plan with debt rather than equity protects the cap table.
In these situations, venture debt is a way to fund growth while keeping more of the company. Outside of them, it may not fit, which is worth being honest about.
Venture debt is a useful tool, not a universal one, and it is worth understanding what it is not.
It is not a replacement for equity. It generally sits alongside a venture-backed story, rather than funding a company that has raised no equity at all. The lender is relying, in part, on the discipline and support that investors bring. It is borrowing, so it has to be repaid, and it has a cost. That means it suits a business with a credible path to the next round or to cash generation, not one hoping the problem solves itself. And it is sized to complement a round, not to replace one, so it extends what equity achieves rather than standing in for it.
Used with those limits in mind, it is one of the most effective ways for a venture-backed company to fund growth without giving up more than it needs to.
A founder weighing venture debt will want three practical questions answered. Here they are, plainly.
What does it cost?
Venture debt is priced above ordinary bank lending, because the risk is higher. The cost has two parts. The first is interest and fees on the money you draw. The second is usually a small equity element, often in the form of warrants, which give the lender the right to buy a modest amount of equity later. That equity element is real, so it should be weighed, but it is far smaller than the dilution of funding the same amount through an equity round.
How much can you raise?
Venture debt is sized to complement a round, not replace it. As a rough guide, the facility is often a fraction of the equity recently raised or being raised, rather than a multiple of it. The exact amount depends on the business, its growth and its backers. But the principle holds: it tops up and extends a round, so its size is anchored to the equity behind it.
What should you watch in the terms? A few things warrant close attention:
None of these should deter a well-run business, but all of them reward being understood before signing. Getting the terms right, not just the headline, is much of the value of good advice on the funding side.
A question founders sometimes ask is whether their VCs will welcome venture debt. Generally, they do, because the interests line up.
An investor wants the companies they back to reach the next milestone in strong shape, and to do so without unnecessary dilution, including of the investor's own stake. Venture debt serves both aims. It extends runway so the business performs better before the next raise, and it reduces the equity given up to get there. Far from competing with the VCs, it works in the same direction they do. In practice, venture debt is often arranged with investors' knowledge and support, as part of a considered funding plan rather than a workaround.
At FBX Capital Partners, we are an independent UK debt advisory firm, and helping venture-backed businesses raise venture debt is part of what we do. We are not a venture capital firm, and we are not a lender. We are the adviser who:
This is familiar ground for us. We arranged a £3.25m venture debt facility for a healthtech company, structured interest-only to protect cash flow. It let the company take on new contracts and reach its Series B in a stronger position, without diluting equity along the way. For a growing company, that is the difference between raising your next round from a position of strength and raising it too soon.
Because we work across the whole lending market rather than a single lender's product set, we can find the venture debt or wider growth capital structure that fits, and make sure it works alongside your equity plans rather than against them. We advise on facilities generally in the £1m to £20m range, and can support venture-backed businesses with strong growth plans. You can see examples of the funding we have arranged in our recent deals.
If you are raising, or have recently raised, and want to understand how debt could extend what the round achieves, that is a conversation worth having early. Do get in touch with the team if it would help.
This article is general information about venture debt and business funding in the UK and is not legal, financial, tax or investment advice. Individual circumstances should be discussed with an appropriately qualified adviser.
Not really. It is better understood as a partner to venture capital than a replacement for it. Venture debt usually sits alongside an equity story, extending the runway a round provides and reducing how much ownership you give up. Equity funds the core growth of the business; debt makes that funding go further on the same dilution. Most venture-backed companies are best served by using the two together, not choosing between them.
Generally the opposite. Investors want the companies they back to reach the next milestone in strong shape and without unnecessary dilution, including of their own stake, and venture debt serves both aims. It extends runway and reduces the equity given up before the next raise. In practice it is often arranged with investors' knowledge and support, as part of a considered funding plan rather than a workaround.
