“I wish I had known about this sooner.”
We hear this all the time from SaaS founders exploring their funding options. The default path for many high-growth companies is traditional venture capital, which often means giving up 20-25% of your company per round.
But what if you could secure growth capital without diluting your ownership?
Alternative financing for startups can be powerful tools for founders who want to extend their runway, fund strategic projects, or bridge to their next milestone on their own terms. Whether you're generating $1M or $10M in ARR, these minimally or non dilutive financing options can help you grow faster while keeping control.
Venture debt is a type of loan for high-growth companies, with or without VC backing. It’s typically structured as a term loan that includes warrants, the option for the lender to buy a small amount of equity in the future.
Think of it as a way to access cash now while pushing your next equity round further down the road. This gives you time to hit new milestones and increase your company’s valuation.
Who is it for? SaaS companies with established revenue (often $1M+ ARR), strong growth, and clear unit economics. It’s ideal for founders who are near profitability or have a clear line of sight to their next funding round or exit.
What are the typical terms?
How does venture debt impact my equity? Venture debt is far less dilutive than raising a priced equity round. While warrants introduce a small amount of potential dilution, it’s a fraction of the 20-25% equity you might sell in a Series A round.
Common uses for venture debt:
Revenue-Based Financing (RBF), also called royalty-based financing, is a model where you receive capital upfront in exchange for a percentage of your future monthly revenue.
This approach is a great fit for SaaS companies with predictable, recurring revenue streams. Instead of a fixed monthly loan payment, your payments adjust with your cash flow. If you have a slow month, your payment is smaller. If sales spike, you pay it back faster.
Who is it for? Post-revenue SaaS companies with predictable MRR (Monthly Recurring Revenue) of at least $80K and gross margins above 60%. RBF works best for companies with low churn and clear unit economics.
What are the typical terms?
Common uses for revenue-based financing:
Trade-offs to consider: While RBF preserves equity, the total cost can be higher than traditional debt if you grow quickly. The revenue share can also impact cash flow during critical growth periods.
A working capital loan is a straightforward debt product designed to cover short-term operational expenses. These loans are often provided by banks or specialized finance companies and are secured by your company’s assets, like accounts receivable.
Unlike venture debt or RBF, these loans aren't meant for long-term strategic projects. They are a tool to manage cash flow gaps and keep business running smoothly.
Who is it for?** Companies facing temporary cash gaps, seasonal fluctuations, or delayed customer payments. Minimum requirements typically include $500K ARR and 6+ months of operating history.
What are the typical terms?
Common uses for working capital loans:
Before you sign a term sheet, it’s critical to look beyond the numbers. The right financial partner can be a valuable ally, while the wrong one can create problems.
1. How does venture debt work for SaaS companies without VC backing?
While most venture debt requires VC investors, some lenders now offer "venture-style" debt to bootstrapped SaaS companies with strong metrics. You'll need at least $3M ARR, 20%+ growth rates, and positive unit economics. Expect higher interest rates and more restrictive covenants than VC-backed companies receive.
2. Is venture debt risky for early-stage companies?
Yes, venture debt carries real risks. You must make payments regardless of performance, and defaulting can trigger immediate repayment of the full balance. Only take venture debt if you have clear visibility to your next funding round or path to cash flow positive. Most companies use it successfully to extend runway by 6-12 months, not as primary growth capital.
3. Should I choose venture debt over revenue-based financing?
Choose venture debt when you need a larger sum of capital for a strategic purpose, like investing in go-to-market activities or a significant runway extension to bridge your company to a major value inflection point (like profitability or a Series B). Choose RBF when your top priority is avoiding equity dilution and you want payments that flex with your monthly performance.
