Big growth decisions often come with big price tags. Maybe you’ve spotted a competitor you could acquire, need to rebuild your platform’s backend for scale, or want to enter a new market before others get there. These aren’t routine expenses, they’re strategic bets that can define your company’s future.
Most founders default to raising another equity round to fund these moves, but that means giving up more ownership.
Venture debt offers another option: targeted capital for high-impact investments without shrinking your stake. Used wisely, it lets you act decisively on opportunities that create long-term value.
The term “capital expenditure” can often bring to mind factories and heavy machinery. But for modern SaaS and tech companies, capital expenditures look different from traditional businesses. You’re often not buying factories or equipment. Instead, you’re making highly strategic investments that create long-term value.
Some common uses include:
This is the core advantage. Every time you raise equity, you sell a percentage of your company to investors. Your ownership stake shrinks. While sometimes necessary, doing it for every strategic expense can quickly erode the value you’ve worked so hard to build.
Venture debt works differently. It’s a loan, not an ownership sale.
You receive the capital you need, make your strategic investment, and pay back the loan over a set period. Your cap table remains relatively unchanged compared to an equity raise. You get the fuel for growth without giving away the driver's seat or adding a "backseat driver".
Let's walk through an example scenario. You want to acquire a smaller competitor for $5 million. The deal is structured as $3 million in cash and $2 million in your company’s stock. Instead of draining your cash reserves or raising a dilutive round, you could secure a venture debt loan to cover the $3 million cash portion of the purchase price.
Why this works:
In some cases, a seller might even accept a “seller note” or "earnout", where they finance part of the purchase themselves or agree to contingent payments based on performance. You could combine these structures with venture debt to further reduce the upfront cash needed.
While acquisitions are one example use case, venture debt supports other forms of growth. Think about any large expense that can directly increase your company’s value or future revenue.
You can use venture debt as a bridge to profitability if you have strong revenue visibility and sound unit economics. It works best when the path to breakeven is short and execution risk is low. However, if path to profitability is uncertain or distant, the repayment burden may outweigh the benefit.
Large-scale product or platform overhauls, like re-architecting your backend to handle 10x the users, migrating to a new cloud provider, or investing in AI infrastructure are exactly the kind of heavy, upfront costs that debt can cover. These upgrades don’t generate revenue today but increase capacity for future growth.
Entering a new geographic market might involve significant upfront costs for legal services, office space, and additional hiring before you generate revenue there. Venture debt can bridge that gap, allowing you to establish a foothold without selling equity at a time when your valuation might not reflect that future growth.
These types of investments are too big to cover out of working capital but too strategic to fund with dilution-heavy equity. That’s where venture debt makes the most sense.
1. How do repayment terms fit with long-term investments?
Most venture debt offers an interest-only period, then repayment over 2–4 years. This gives time for acquisitions, expansions, or rebuilds to start paying off before heavier payments begin.1. What do venture debt lenders look for?
2. How is using venture debt different from raising a Series A for an acquisition?
The main difference is ownership. A Series A round involves selling a significant equity stake (often 15-25%) to venture capitalists in exchange for cash. Venture debt is a loan that you pay back, so you retain full ownership. Debt is also typically faster to secure than a VC round, which can take months of pitching and negotiation. For a specific goal like an acquisition, debt is often a more direct and less dilutive financing tool.
3. Can I use venture debt to buy out a co-founder?
Yes, this is a common and practical use case. A co-founder buyout is a large capital event that doesn’t directly generate new revenue but is critical for the company's stability and future direction. Using venture debt allows you to finance the buyout without draining the company's operating funds or being forced to sell a large chunk of equity to a new investor just to manage the transition.
