![]() We see venture debt a bit like a student loan for a young company that has started its journey, completed its early education and is now ready to take the next step. What’s special about venture debt from the European Investment Bank? In the US, by contrast, studies put this figure at about 15%. We estimate that in Europe, venture debt represents about 3% of the annual venture capital transactions in terms of amounts. It is difficult to be precise here and what we know today is based on few internal and market studies as well as anecdotal evidence. The product moved from an instrument used to finance assets to more like what we have today. ![]() As the venture capital business started to pick up and more and new players entered the start-up scene, more boutique banks and small funds started providing small loans to early stage companies. ![]() Then in the 1980s, the Silicon Valley Bank and other private funds started providing venture debt to companies in order to give them a break from having to constantly raise new rounds of equity, which is very time consuming for businesses, as well as dilutive. This was way back when Silicon Valley was actually about silicon and chip production and startups needed to buy expensive machinery. It was mostly used as leasing for machinery, then. Venture debt first appeared in the 1960s and 1970s in California. However, venture debt providers stay very closely linked to venture capital investors and it is not unusual to see a being provided with such loans multiple times during its development. Most often, private venture debt providers (funds or banks) expect to be repaid from the proceeds of the next funding round. Typically, these loans are repaid within a period of 18 months or sometimes up to two-three years. Venture debt is rarely used as a long-term financing solution. Venture debt is a loan to an early stage company that provides liquidity to a business for the period between equity funding rounds.
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