Venture debt

Venture debt is debt financing granted to an innovative company backed by venture capital, alongside its equity fundraising. The borrower is not yet profitable; its value rests on its technology and its growth prospects. The lender accepts a risk close to that of an equity investor and prices it through interest, possibly capitalised (PIK), and through an equity component (equity kicker) in the form of share warrants. The European Investment Bank’s venture debt programme gives structural benchmarks: tickets of €10m to €40m, up to €120m for scale-ups, an upfront commitment of the total amount disbursed in two or three tranches subject to milestones, an availability period of up to 36 months, a maturity of five to six years per tranche and bullet repayment at maturity or on exit. This programme has made 338 investments totalling €8.4bn since its launch, including €1.0bn in 2024 in 37 companies. For the company, venture debt extends the cash runway to the next funding round or to breakeven. Its dilution is lower than that of an equity raise of the same amount. The negotiation covers the warrant coverage, the disbursement milestones, the repayment schedule and the security.

A biotechnology company that has raised €80m in venture capital obtains €30m of venture debt in three €10m tranches, each released at a clinical milestone. The loan is repayable as a bullet after six years, bears interest and gives the lender warrants representing 1.5% of the share capital.

• The warrant coverage and the exercise price.
• The milestones that condition each disbursement tranche.
• The repayment: bullet, on exit or amortising.
• The security required over the company’s assets.