Venture debt can be a powerful tool for pre-profit scaleups to fuel growth without diluting ownership, but it’s important to raise it at the right moment.
By understanding when to introduce debt capital alongside equity, fast growing companies can extend their runway without further dilution, preserve cash, and gain flexibility. Here’s a look at the to three moments to consider raising venture debt.
Boosting Growth Capital when your balance sheet is strong
Adding venture debt alongside or after an equity raise can help stretch new funds further. at this point, your business has withstood the rigours of a fundraise process, and its balance sheet will be in a strong position giving lenders more confidence in your business and access to better terms. Venture debt can serve as a non-dilutive complement to equity capital, helping to finance growth initiatives like scaling your team, expanding sales, or building out infrastructure.
For instance, if you’ve raised £10 million in equity, you might add £2-3 million in venture debt to top off the round. This additional capital can extend your cash runway and give you the agility to seize new opportunities while avoiding additional dilution from equity.
In Between Equity Rounds: Extend Cash Runway and Achieve Milestones
Using venture debt between rounds can help extend your cash runway, particularly if you need more time to hit important milestones that will boost your valuation in the next raise. This approach lets you sustain momentum without raising a new equity round too soon and risking unfavourable terms.
For example, if you’re aiming to hit a key product launch or revenue target, venture debt can give you the buffer needed to reach those milestones. This way, by the time you do raise equity again, you’re in a stronger position to negotiate better terms and attract more investors.
In Place of a Final Equity Round: Bridge to Profitability
For companies burning cash but about on track with profit forecasts, venture debt can play a part in the mix of a final equity round. This strategy helps avoid dilution at a stage when the business is more stable and can support debt repayment from future cash flows. If you’re already generating steady revenue and your path to profitability is clear, venture debt can provide the last boost to self-sufficiency.
In this scenario, venture debt becomes a bridge to profitability, allowing you to retain ownership and maximise value for existing shareholders. It also sends a strong signal to the market and investors that the company has matured and can manage non-equity financing responsibly.
Beyond Equity: The Three Best Times to Raise Venture Debt
Venture debt can be a valuable tool, but the timing is crucial. Raising it strategically—whether at the end of an equity round, between rounds, or as a final boost to profitability—allows founders to unlock growth and extend runway without unnecessary dilution.
