Two main routes to acquire venture debt for your startup

Understanding the credit box and qualification requirements of different venture lenders can become complex. Hundreds of lenders focus on providing debt to tech-companies and each lender has its own requirements regarding the startup’s revenue size and type, business segment, growth rate, burn rate, equity structure, runway, customers’ concentration, marketing channels, profitability projections, business KPIs, use of funds and other financial and operational parameters.

However, there are two main routes to explore in order to understand and eventually acquire venture debt:

Revenue based models

Revenue based models including revenue based financing, cohort based financing, receivables financing (factoring), user acquisition financing, MCA, MRR lines of credit and other channels which rely and structured around cash inflows from customers – For those revenue based models one needs to show revenue history (ideally at least 12 months back) and a positive growth environment (ideally 30%+ YoY) and high gross margins. This route can also fit companies which are not VC backed and therefore lenders want to see “a path to profitability” reached before the runway ends.

Main considerations for lenders:
 a) Next year/s’ revenues can be forecasted based on historical data (ideally recurring or other predictable types of revenue)
 b) Runway of at least 12-months post financing (some require min. 18-months runway)
 c) Reasonable plan to become break-even with no need to rely on future equity investment

Expected check size: usually lenders can offer 30%-60% of your predictable revenues amount for next 12 months.

The venture lending route (for VC-backed companies)

Venture lending can be applied simultaneously or soon after an equity round. Lenders rely on the long runway and potential of your future equity investments down the road and therefore prefer to see good VCs on the cap table. Some lenders can also accept recent investment by a reputable family office or another investment vehicle which is not a VC. The check size in venture lending derives from the VC investment size.

Main consideration for lenders:
 a) When and which VCs participated in your latest equity round (ideally not more than 9 months after the equity round date)
 b) Burn rate and the expected time of your next equity round (ideally next round is in more than 18 months from now)

Expected check size: usually lenders can offer 10%-20% of the check size which VCs invested in your latest round.

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