“I’d rather owe interest than lose equity,” a founder said over coffee in the early spring. In order to avoid a down-round valuation that would have greatly reduced his team’s stake, his startup had just closed a venture debt deal. The data presented an engaging narrative that growth-stage businesses looking for astute funding are becoming more and more accustomed to.
An obvious change has emerged during the last year. Founders are using debt as a remarkably successful strategy rather than as a last resort. Non-dilutive capital has emerged as a useful tool, especially during periods of hesitancy on the part of venture capital.
| Key Insight | Description |
|---|---|
| Focus | Why startups are increasingly choosing debt over venture capital |
| Driving Factors | Equity dilution concerns, faster access to funds, valuation preservation |
| Benefits | Retains founder control, improves capital efficiency, builds leverage |
| Ideal for | Startups with predictable revenue, strong financials, growth-stage scaling |
| Key Risk | Fixed repayment terms and limited flexibility for early-stage ventures |
| Market Shift | 2025 marked notable growth in venture debt across Europe and Latin America |
| Strategic Use | Bridges to next round, short-term expansion, avoids down rounds |
| Source | www.gilion.com/basics/venture-capital-vs-venture-debt |
Venture capital has been more cautious since the middle of 2023. Cash is no longer being thrown at projections or charisma by investors. They desire a short-term route to profitability, sharper clarity, and a leaner burn. Companies have been forced to look elsewhere for financial agility as a result of the longer funding cycles brought on by this increased scrutiny.
Founders can now access debt in ways that were previously thought to be risky or rigid by utilizing predictable revenue, particularly in subscription-based businesses. Venture capital is no longer a trap for SaaS startups with solid metrics; rather, it is a tool. A strong one.
Debt does not take away ownership, in contrast to equity. Voting rights and board seats are not demanded. It just requires accountability and a carefully considered repayment schedule. This trade-off is increasingly advantageous for teams with strong cash flow.
Surprisingly, some startups have achieved much higher follow-on valuations by strategically leveraging debt. Compared to peers who only used equity, reports indicate a median increase of 49%. This benefit is changing the tone of boardroom discussions.
I brought attention to this trend—presenting debt as a clever pause button—in a founder workshop during the most recent funding season. One that, in a downturn, allows startups to grow into their valuation without having to give up a bigger portion of their business. That change in viewpoint led to a lively debate.
Additionally, debt financing proceeds much more quickly. A well-structured debt deal can close in a matter of days, whereas a venture round may require weeks of pitches and negotiations. This speed is very effective for founders who are confronted with opportunities for rapid growth.
It’s not for everyone, though. Early-stage businesses are frequently unprepared for fixed repayments because they lack consistent revenue or have extremely erratic cash flow. Lenders want things like contracts, projections, and client retention to be clear. They are purchasing viability rather than vision.
Venture debt has increased in Spain and Latin America. For the first time, debt exceeded equity fundraising for startups in Spain alone in 2024. That isn’t a coincidence; rather, it shows that debt’s strategic importance is becoming increasingly acknowledged.
These days, founders approach capital structure with the same thoughtfulness as they do product roadmaps. They can extend their runway without losing control by combining debt and equity. Financial literacy has significantly increased across startup ecosystems.
Investor sentiment is also changing as a result of this evolution. These days, lenders provide more flexible options, such as revenue-based repayment plans, interest-only terms, and warrants. Even for non-traditional industries, debt has become extremely versatile thanks to these customized options.
Those founders who follow this path frequently go back for a second or third facility. It works, not because it’s desperate. By the time they raise equity once more, they have achieved milestones and increased revenue, putting them in a stronger negotiating position.
This dual-track approach—combining debt and equity—may define startup growth models in the years to come. Raising at all costs is becoming less common. They are being replaced by a new generation of founders who are more intelligent and well-off.
Through thoughtful planning, debt no longer feels like a risk. It resembles resilience. And it might be the best money they ever raise if they know how to use it.
