Venture debt is another source of capital available to early-stage companies. Venture debt, however, is typically not available to very early-stage companies as the company must be able to 1) demonstrate a steady cash flow or 2) be backed by a VC which will guarantee the principle in order to receive the loan.

If you do qualify to take venture debt you should expect the lender to take a limited equity stake in the company – they seek to primarily generate returns through interest payments made by the company and warrants, which given them the right to buy stock in the company at some point in the future at the current price.

This investment model differs from venture capital firms, as venture capitalists generally do not require the company to re-pay the principle of their investment until the company’s shares are liquidated. Venture capital returns are generated by the appreciation and liquidation of their equity stakes in the company.

While venture debt isn't typically a form of capital accessible to very early startups, it is an option that entrepreneurs should keep in mind as a future financing option.