Venture Debt vs Venture Capital, What is Your Best Option as a Startup?

Funding can be challenging for startups. Receiving the correct type of funding during the life cycle of a startup is crucial to its survival and profitability. We are dealing with a pandemic during which investors, Venture Capitalists (VC), are unsure as to how much they want to invest in ideas and keep reinvesting. We are seeing founders forced to raise capital with large equity dilution to survive. With the looming possibility of down rounds there is more venture debt available in the market as we see investors being more safe than sorry with their investments. With that being said this blog post will talk about two funding mechanisms out there; venture capital and venture debt. We will go over what they are, their benefits, advantages, disadvantages and examples of what would suit your startup best.

So, what is venture capital? In simple words, venture capital is a financing tool for companies. These investments cannot usually be accessed until a liquidity event, such as when a company is acquired or goes public, at which point VCs realize their profits from their initial investment. Venture capital is characterized by high risk/ high reward. Venture capital is present mostly in Business to Consumer (B2C) software, Business to Business (B2B) life sciences, and Direct to Consumers (D2C).