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Venture debt for startups: an overlooked but powerful lever

When thinking about startup financing, we often think of equity fundraising — investors injecting capital in exchange for shares in the company. But there is another lever that is just as powerful, yet largely underestimated: debt.

Why can debt be an asset for your startup?

Debt is often perceived as risky or ill-suited for startups, which generally haven't yet reached a stage of stable profitability. However, it offers undeniable advantages: you finance your company's growth without giving up equity. And that is where the real value lies: you give yourself the means to grow rapidly while protecting your equity.

Here are the four main benefits of debt for a startup:

1. Maximizing available cash : Raising debt allows you to have more liquidity to support your projects while limiting the dilution of your capital. It is a way to increase your financial resources without diluting your shares in the company.
2. Extending your runway : Your runway is the amount of time your startup can operate before running out of cash. With a well-structured debt injection, you can extend this runway, giving your company more time to reach its financial or strategic goals.
3. Accelerating growth : By combining these two types of financing, you can significantly boost your growth. Debt allows you to invest heavily in initiatives that propel your development, all while maintaining more control over your company.
4. Lowering valuation or dilution during fundraising : By including debt tranches in your financing plan, you have the option to ask for less equity (thereby reducing dilution) or to lower the valuation while keeping the same level of dilution, which increases your chances of a successful raise.

Integrating debt into your fundraising strategy

When planning an equity fundraising round, it is crucial to include debt in your thinking. The idea is to determine exactly how much equity you need, while taking into account non-dilutive financing to cover your needs until you reach your break-even point or the KPIs required for the next round.

Too many entrepreneurs still see debt as a mere bonus to be explored after a raise. Yet, when anticipated correctly, it can make a huge difference in your startup's ability to develop in a sustainable and agile way.

What types of debt are available for startups?

Non-dilutive financing is not limited to simple, traditional bank loans. Today, there are many instruments tailored to startups, including:

• Guaranteed bank loans : Loans with favorable rates and partial guarantees, often offered by banks supported by government programs.
• Honor loans : Interest-free loans that require no personal guarantees, often provided by associations or organizations that support entrepreneurship.
• Public funding : Many innovative companies can obtain funding from BPI or regional authorities, often covering 40 to 50% of the required equity, typically with a 2 to 3-year grace period during which you do not repay the principal.

Securing this funding requires time and expertise, but it is accessible to the majority of innovative companies, with the exception of certain niche sectors.

Debt is not uncharted territory to be avoided by startups—quite the contrary. It can play a decisive role in your financing strategy, allowing you to accelerate your growth while remaining in the driver's seat. If you are in the middle of a fundraising round or about to close one, it is time to look into the possibilities offered by non-dilutive financing. Shall we discuss it?

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