How is venture debt raised?

When it comes to raising capital for your startup, there are various avenues to explore
A representational picture of raising money. — Canva/File
A representational picture of raising money. — Canva/File

The process of raising a venture debt normally begins with negotiation between the startup and the lender institution. If the initial discussion goes well, both parties will sign a non-disclosure agreement (NDA) and the lender will start their due diligence, a process carried out to establish any business assets, and liabilities and evaluate its commercial potential. 

This includes studying the company's investor presentation, 409A valuation, capitalisation table, financial statements, and projected financials, according to TechCrunch. The lender also wants to comprehend the company's customer base and sales forecasts.

Once the lender has completed their evaluation process, they will issue a term sheet. The term sheet outlines the terms of the loan, such as the maturity date, interest rate, and fees. The startup then presents the term sheet to its board of directors so that they could make their own decision on whether to go ahead with this lender or not.

When the board accepts the term sheet, the startup, and the lender institution will discuss the final terms of the loan. Once both parties agree upon the terms, the loan will be funded.

The whole procedure of raising venture debt can take anywhere from one month to six weeks. The exact timeline will differ depending on the company and the lender.