Venture debt is medium-term debt for companies backed by venture capital funds. It combines a loan with warrants: the lender charges interest and also receives a right to subscribe a small equity stake. For the issuer, it serves to extend cash runway between rounds with barely any dilution of shareholders.
How a venture debt operation works
The usual structure is a two- to four-year loan, with initial grace months, interest above bank rates, and arrangement fees. In exchange for taking a risk that banks do not take, the fund receives warrants: an option to subscribe to equity for an amount calculated as a percentage of the principal lent.
In Spain there is a corporate nuance that conditions the documentation. A sociedad limitada cannot issue convertible bonds into shares (art. 401 of the Ley de Sociedades de Capital). That is why the warrant is structured as a contractual subscription option, in the shareholders' agreement or in a specific agreement, not as a convertible bond.
When comparing offers, calculate the total cost: interest, fees, and the value of the future dilution of the warrant. Compare it against the cost of raising capital today.
Venture debt vs equity
| Criterion | Venture debt | Capital increase |
|---|---|---|
| Dilution | Low: only the warrant | High: direct transfer of a percentage |
| Cost | Interest and fees, with repayment | No repayment: paid by transferring equity |
| Valuation | Does not require valuing the company | Sets a valuation at each round |
| Governance | Covenants and information duties | Board and investor voting rights |
| Risk | Repayment obligation even if the plan fails | No repayment obligation |
Debt fits when cash depends on milestones at twelve or eighteen months and the last round is recent. If the business does not yet have recurring revenue, equity is still the reasonable route: debt without a repayment plan only postpones the problem. To compare the routes on the equity side, review tokenized equity vs share capital increase.
Venture debt vs corporate bond
A corporate bond is a security issued in series: many investors buy identical instruments, with possible admission to trading on a market. Venture debt is the opposite: a bilateral or club deal, with a specialized fund, tailored terms and no secondary market.
The practical consequence is in the requirements. A bond requires structuring an issuance, with its documentation and, depending on the amount, a prospectus or exemption. Venture debt is closed with a financing agreement and its guarantees. For small amounts and a single financier, the contract wins; to diversify investors and build an issuer track record, serial issuance.
When it fits for the issuer
The best-fit uses: extend the cash plan to the next milestone without renegotiating the valuation, finance investments with measurable return and cover working capital seasonality. A widespread reference in the sector is to size debt as a fraction of the last equity round, not as its substitute.
The warning signs are also clear. If debt replaces a round that is not coming, or repayment depends on a future capital increase that no one has committed to, the instrument worsens the risk instead of sharing it. Decide with the treasury plan in front of you, not with the term sheet.
Venture debt and tokenized debt
Documented as a bilateral loan, venture debt is not a transferable security: it does not fall under the representation regime of Ley 6/2023 and does not require a prospectus or securities registration. It is a contract between two parties.
The scenario changes if the issuer structures the operation as an issuance of bonds or notes to open it to several investors. Those securities can be represented in a distributed ledger system, with an ERIR, the entity responsible for registration and record, the digital notary of the issuance, keeping the register (arts. 6 and 8 of Ley 6/2023; RD 814/2023). The details of that route are in tokenization of debt and bonds in Spain; if your company is an SME, also see tokenization for SMEs.
The closing criterion: one financier, contract; several investors and an intention to repeat issuances, securities. In that case, choose the form of representation by comparing registration and operational costs.
Are you comparing debt and equity for your next financing? Take the issuance diagnostic (2 min) or request a proposal. If you prefer to start by reading, download the 2026 guide.
This content is informative and educational. It does not constitute legal, tax, or investment advice. Check the current version of each regulation in the BOE and on EUR-Lex.
HokenFi is a software and infrastructure provider; it does not provide regulated services (CASP, ESI, EAF, or ERIR). This article is informative and does not constitute financial or legal advice.
Frequently asked questions
Does venture debt dilute shareholders?
Little. Dilution is limited to the warrant, which usually represents a small percentage of the capital if it is exercised. Compared with a capital increase, where the investor takes a direct percentage from day one, venture debt preserves the shareholders' position in exchange for interest, fees and repayment obligation.
What does a venture debt fund require in order to lend?
The usual requirement is a recent venture capital round, a treasury plan that shows how the debt will be repaid and commitments for periodic reporting. The analysis relies more on the quality of the investors and the plan than on assets as collateral, although guarantees also appear in many transactions.
Can venture debt be tokenized?
As a bilateral loan, no: a financing agreement is not a transferable security. If the operation is structured as an issuance of bonds or notes, those securities can be represented in distributed ledgers under Ley 6/2023, with an ERIR keeping the register and several investors participating in the same issuance.
