Venture Debt is having a moment.

With the growing maturity of the UK innovation market and increased levels of economic uncertainty, many companies are using debt finance as an additional source of funding to complement their equity rounds.

So, let's break down "the do's and don'ts" of successfully raising Venture Debt in 2025.

First things first – what is Venture Debt, and what's the appropriate use case to consider it?

The term 'Venture Debt' is really a 'catch-all' for loans specifically designed to suit high-growth loss-making companies, that are backed by venture capital funds.

As a result, they can come in various shapes and sizes and can be tailored to a company's specific requirements. Generally, traditional Venture Debt is a term loan that amortises (usually with monthly repayments) over a 4–5-year maturity. The loan size is most often 20-35% of the equity round, essentially providing a cash buffer on top of the equity to extend the company's cash runway.

Once you know what it is, it's important you're clear about why you are raising Venture Debt. What's the use case? Given it's a flexible form of debt, use cases can vary from accelerating growth, expanding into new markets, driving product development, providing a cash buffer against unforeseen glitches or extending cash runway to mixing it with equity to minimise dilution.

Let's turn to which types of companies can raise Venture Debt.

In general,Venture Debt may be viable for companies that have recently raised equity from an institutional Venture Debt fund, as opposed to bootstrapping through 'friends and family'.

That means Venture Debt is primarily available to Series A+ companies (raised at least £5m in their Series A), though seed-stage companies with a strong, established VC fund can also access this form of debt in some cases.

It may seem counter-intuitive, but arguably the best time to raise Venture Debt is when you have just raised equity.

Although you are flush with cash at that point, this is also the time when you maximise your negotiating power. A lender to a loss-making company may look favourably on a company that has recently raised equity, has a strong cash runway and an up-to-date diligence pack.

But there are other factors to consider :

Strategic alignment

Consider if the terms of the debt align with your strategic plan for the business. The debt should be free of any restrictions and can be used for anything the company requires – flexibility is key at this stage.

Restrictive conditions or covenants

If possible, avoid financial covenants, especially at seed and Series A stage, as the company needs to retain the optionality to pivot to drive growth without the distraction of renegotiating its debt terms.

Overcall cost and lender track record

The cost of the loan will depend on how established your business is. For example, a seed-stage or pre-revenue company is viewed as higher risk and can expect to pay a higher premium than say, a Series B company generating £10m in annual recurring revenue. Depending on the debt provider, the interest rate will range from 8%-15% plus associated fees and a small equity warrant.

Venture Debt can bring a number of advantages to a business.

As well as providing extended capital for growth and easing those unforeseen bumps in the road, some investors like the notion that it allows them to leverage their investment further and for future investors it can signal good liquidity management by the company.

However, there are a number of elements to consider. What's the use case? Is now the right time based on your progress against key milestones? And crucially, can you trust the provider?

With all these factors to consider, it's often helpful to have a conversation to help you navigate the process.