Growth-motivated companies require funding to support their scaling and can choose from a wide range of financing options, including venture capital, crowdfunding, angel investors, and venture debt. Venture debt financing is a strategic alternative to popular choices like venture capital. It offers unique advantages to borrowers like greater flexibility, more control over equity dilution, and faster access to capital. Wondering why do companies raise debt? Read on to explore what debt funding is, the benefits of venture debt, and how choosing the right financing partner can support your growth.
What is Venture Debt Financing?
Venture debt financing allows companies to borrow capital and pay it back through the terms set ahead of time. Faster than other forms of financing, venture debt is swiftly accessible and designed to support growth-stage companies with the capital they need, right when they need it. Venture debt offers a variety of structures to best support your unique needs, and three common funding options include:
- Standard Installment Loan – With this structure, debt capital is available in either a lump sum or through tranches, which allow borrowers to take portions of the loan as needed and save on interest. Principal and interest payments must be made over a set period of time.
- Interest Only – Through this form, borrowers can maintain more revenue to reinvest into your growth and accelerate your momentum by paying only interest on loans for a set period of time.
- Step-Up Structure – Similar to revenue-based financing, this option includes payments that change from month to month to reflect payment amounts best suited to your company’s growth stage. With River SaaS, all terms are calculated ahead of time so borrowers understand precisely what to expect.
Unlike venture capital, some debt funding is non-dilutive, meaning borrowers do not give up equity in return for the funds. Some debt providers may combine their loans with financial agreements known as warrants, which can give them the right to purchase equity at a fixed price before a certain expiration date. With River SaaS, we never operate with warrants, ensuring ownership control remains in the hands of our borrowers.
Why Do Companies Raise Debt?
Venture debt has grown to be a popular choice for a myriad of reasons, some of which include:
Manage Equity Dilution
As an alternative to equity financing, venture debt is a strong option that allows for better control of equity dilution. If venture capital is the only funding source a company uses, in order to secure the financing required to carry out growth initiatives, it may require a larger loss of equity than desired. With venture debt, companies can maintain ownership and gain vital funds without losing additional equity.
Secure More Funding Sooner
Traditional banks may require businesses to reach certain milestones or offer specific collateral assets in order to secure funds, and equity options may require owners to give up large percentages of ownership to gain investment. Raising debt allows companies to secure necessary funding in an earlier stage in their growth, helping support more swift, sustainable scaling.
Raise Valuation and Manage Runway
Some companies choose to utilize both equity and debt funding, and find debt to be a powerful asset in managing their runway between raise rounds. Debt can also be used to spark new growth and raise your valuation so you’re more strategically positioned for the next equity raise round.
Fast and Flexible
Venture debt funding is accessible much sooner than other forms of financing, allowing borrowers to put it into action faster. It can also be used flexibly and be tailored to what best suits your unique growth goals. Whether you require funds to build out a dedicated sales team or you’re ready to ramp up your marketing efforts, venture debt funding is a strategic solution.
Why Do Companies Raise Debt with River SaaS? The Difference is Clear.
At River SaaS, we’re committed to supporting SaaS companies with the financing and insight required to scale. Our comprehensive support is tailored to best serve your unique needs, and we offer a variety of funding structures for you to choose from, including traditional installment loans, interest-only options, and step-up financing. After developing a long-term financial relationship with our portfolio companies, we also offer equity options to established borrowers wanting to utilize that option as well. We provide strategic financial solutions that support your growth in the long-term, and also offer valuable growth insight to take your business to the next level.
Unlike some competitors, we never require warrants with our venture debt funding, ensuring you can maintain control of your ownership dilution. We also don’t require current profitability or an exit strategy from our borrowers, helping earlier stage companies accelerate their growth faster with vital debt funding. Over the years, we’ve supported some of the brightest SaaS companies in their growth, and we’re eager to become a part of your journey too.
Contact Our Team Today to Get Started
Why do companies raise debt with the River SaaS team? Because it best supports their growth. When you’re ready to support your scaling and secure the funds you need to grow, we’re here to help. Contact our team today or fill out our form below to learn more about how we can best serve you.
