Venture debt can be a powerful tool for startups, but myths and misconceptions often hold founders back from considering it. Here we examine and dispel some of the most common and persistent myths:

Myth 1: Venture Debt is Only for Companies in Financial Trouble

Fact: Venture debt is commonly used by healthy, growing companies to complement equity financing. Startups use venture debt to extend runway, accelerate growth, and reach key milestones without diluting equity. It’s a strategic financing tool for strong businesses.

Myth 2: Venture Debt Dilutes Ownership, Just Like Equity

Fact: Unlike equity financing, venture debt does not require founders to surrender any share of their ownership. This makes it an attractive option for startups looking to raise capital while preserving equity and maintaining control of the business. With venture debt, founders can grow their companies without sacrificing ownership stakes.

Myth 3: Venture Debt is Riskier Than Equity

Fact: While venture debt comes with repayment obligations, it can be less risky than equity. Equity investors often push for aggressive growth and expect significant returns, which can add pressure to a startup. Venture debt, on the other hand, often comes with flexible repayment terms and does not require founders to cede strategic control.

Myth 4: Venture Debt is Only for Late-Stage Companies

Fact: While PitchBook data suggests that most venture debt still goes to later-stage ventures, early-stage startups can also benefit from venture debt to fuel growth, expand product development, or bridge between funding rounds. As long as a company has a strong growth plan and sound financials, it can be a good candidate for venture debt, no matter its stage.

Myth 5: Venture Debt is Only for Startups in Certain Industries

Fact: Venture debt is not limited to specific industries. While it is often associated with tech and life sciences, venture debt is available to startups across a wide range of sectors, including healthcare, energy, consumer products, and more.

Myth 6: Venture Debt Limits Growth by Restricting Cash Flow

Fact: Venture debt can actually enhance growth by providing the capital needed to scale. Venture debt offers incredible financial flexibility and startups can use it to fund operational growth, hire new talent, or invest in marketing, without waiting for the next equity round.

Myth 7: Venture Debt Lenders Are Difficult to Work With

Fact: Venture debt lenders typically understand the unique needs of startups. Unlike traditional banks, venture lenders are more flexible and accustomed to working with high-growth companies. We structure deals that fit a business’s needs, providing capital without taking board seats or influencing decisions.

Venture debt is a flexible, non-dilutive financing option that can support startups at various stages and in various industries and offers significant advantages in preserving ownership, supporting growth, and enhancing financial flexibility.

At ATEL Ventures, we offer tailored venture debt solutions designed to help startups thrive. Read about some of our success stories here.

Startup founders are often wary of taking on debt. It can feel like too risky a financial burden, coming as it does with fixed repayment obligations, regardless of business performance. Many founders fear that taking on debt could strain cash flow, limiting their ability to reinvest in growth or weather market fluctuations.

However, when used strategically, venture debt can be a powerful tool, offering financial flexibility without diluting ownership and acting as a catalyst for growth. Used alongside equity financing, venture debt can extend runway, bridge equity rounds, fund key initiatives and more. It’s about finding the right balance and using debt strategically to support growth, while keeping equity in reserve for future raises or other strategic moves.

Here are 10 key reasons why venture debt should be on the table for founders of capital-intensive startups:

1 Preserving Ownership and Control

One of the most significant advantages of venture debt is its ability to provide capital without giving up equity. For many founders, retaining control of their company is a top priority. Venture debt allows them to access the funds they need to grow the business while maintaining their equity stakes. This is particularly important in industries where multiple rounds of equity financing are necessary to scale, as each round dilutes a founder’s ownership. With venture debt, founders can strategically preserve their equity for future raises when valuations are higher.

Additionally, many venture debt providers include minimal or no covenants related to management control, allowing founders to focus on business growth rather than investor oversight. This is a key difference compared to venture capital, where investors may demand board seats or significant influence over company decisions.

2 Extending Runway for Key Milestones

Venture debt can extend a startup’s financial runway, providing crucial breathing room to hit key milestones like product launches, revenue goals, or market expansion. Startups often face timing challenges between rounds of equity fundraising, and venture debt can bridge the gap without pushing founders into raising another round prematurely.

This extra time can help startups increase their valuations by showing stronger metrics and more growth before seeking more equity capital. A longer runway also allows companies to execute on larger-scale plans without cutting back due to short-term cash constraints.

3 Faster Access to Capital

Unlike equity financing, which can take months to obtain due to due diligence, negotiations, and board approvals, securing venture debt is a more streamlined process. This means startups can access funds quickly, enabling them to capitalize on market opportunities that require immediate investment, such as expanding their team, increasing production, or acquiring key assets.

Having quick access to capital is essential for growth-stage companies, especially in fast-moving sectors like technology, life sciences, or consumer goods, where market windows can be fleeting.

4 Flexibility in Use of Funds

While equity capital is often tied to long-term strategic initiatives, venture debt offers greater flexibility in how the funds can be used. Founders can use venture debt for a variety of purposes—whether it’s to fund day-to-day operations, cover short-term working capital needs, invest in R&D, or expand into new markets. This flexibility allows founders to deploy capital in areas that have the highest immediate impact on their business, while using equity capital for those larger-scale initiatives that align with their investors’ long-term vision.

For example, startups can use venture debt to accelerate product development, roll out new marketing campaigns, or invest in infrastructure upgrades without being locked into a specific equity-driven use case.

5 A Bridge to Equity

For startups that are planning a future equity raise, venture debt can act as a bridge, providing interim capital without the need to raise another round at potentially unfavorable terms. This is especially beneficial if the company expects a higher valuation in the near future but needs capital now to maintain operations or fuel growth.

By securing venture debt, founders can delay their next equity raise until they have achieved important milestones or market traction, leading to a stronger negotiating position when they do go to investors.

6 Lower Overall Cost of Capital

While venture debt typically carries an interest rate, its overall cost is often lower than the cost of equity financing. With equity, founders give up a portion of their company, which could be worth exponentially more in the future. In contrast, venture debt provides capital in exchange for regular interest payments and the eventual repayment of the loan, without the same long-term dilution impact.

Venture debt may include warrant coverage, which gives the lender the right to purchase equity at a later stage, but the dilution is typically far less than an equity raise.

7 Reducing Equity Dilution

In many cases, founders and early investors want to protect their ownership percentage in the company, particularly before a significant exit event. Venture debt can be used to minimize equity dilution during periods of rapid growth, allowing startups to maintain ownership while still accessing the funds needed to expand.

By raising capital through venture debt instead of equity, founders can retain larger ownership stakes for future equity rounds when valuations are likely to be higher.

8 Building Investor Confidence

Securing venture debt from a reputable lender sends a strong signal to potential equity investors that your business model is sound and that the company is positioned for growth. Lenders conduct their own due diligence, so their commitment provides a form of validation. When paired with equity financing, venture debt can enhance a startup’s credibility with both existing and new investors.

This can help startups attract new venture capital and potentially improve their terms in future funding rounds.

9 Maintaining Operational Momentum

As startups grow, operational costs such as expanding teams, scaling production, or entering new markets can quickly escalate. Venture debt allows startups to maintain operational momentum without slowing down for a drawn-out equity raise. By smoothing out cash flow and covering short-term expenses, venture debt ensures that startups continue to grow at their planned pace without sacrificing longer-term goals.

10 Positioning for an Exit

For startups that are approaching an exit—whether through an acquisition or IPO—venture debt can provide the final push needed to scale rapidly or close critical deals. In many cases, having venture debt on the books can improve a company’s financial standing, as the ability to manage debt effectively is seen as a positive indicator of fiscal responsibility.

In these situations, venture debt can provide the working capital necessary to finalize deals or make strategic acquisitions, positioning the company more attractively for potential buyers or public investors.

At ATEL Ventures, we specialize in offering flexible venture debt solutions that cater to the unique needs of startups and over the past 25 years we have helped countless startups go on to major success. Read about some of them here.  

For capital-intensive startups in sectors like space tech, biotech and energy, venture debt is an essential part of the financing mix.

A complement to equity investing, venture debt provides ambitious founders with the ability to extend their runway and reach important milestones without overly diluting their equity. It enables them to make important investments in covering upfront operational expenses, expanding their teams, pursuing their product development or exploring international expansion.

Venture debt also acts as an important signal of confidence to current and future investors, by demonstrating that a credible lender recognizes the potential of the startup and its business model.

For 25 years, ATEL Ventures has worked with venture capital (VC) firms to lend hundreds of millions of dollars that have propelled scores of startups towards meeting their goals. Here are just some of our recent success stories:

Astranis: An Eight-Year Countdown

Astranis is a space startup that builds small and low-cost telecommunications satellites to provide internet access in remote regions. The company has raised more than $750M through a combination of venture rounds and debt financing, and is today valued at over $1.5B.

The company’s recent $200M Series D round enabled it to fully fund its Omega range of satellites, but designing and building a new generation of satellites is a costly and time-consuming process, fraught with logistical, operational, technical and regulatory obstacles, and it has been a long journey to this point.

The San Francisco company was founded in 2015 and did not launch its first satellite until 2023. In an interview with TechCrunch at that time, co-founder and CEO John Gedmark reflected on the company’s early challenges, which included securing premises, developing new technology and attracting the necessary talent, not to mention navigating lengthy and complex procurement processes with the U.S. and foreign governments: “The toughest [time] was probably the last year or so as we were really getting close to launch, but the launch got delayed,” he said. “That happened several times.”

Astranis’ eight-year countdown from inception to launch is not unusual for the space tech sector and the fact that big name venture investors like Y Combinator, Andreessen Horowitz, Black Rock and BAM Elevate kept the faith over that period is testament to their belief in the potential of both the company and the sector.

However, equity investment alone would not have been sufficient to get Astranis off the launch pad. Gedmark and his team have also been astute enough to make strategic use of venture debt and we are proud to have been a part of that: Astranis stands to not only transform the satellite industry, but to bring internet connectivity to many millions of people, with all of the opportunity that creates in terms of access to information, education and commerce.

Isar Aerospace: Cutting-Edge Technology

Isar Aerospace is another company revolutionizing access to space. Founded and headquartered in Munich, Germany, Isar Aerospace is developing Spectrum, a two-stage rocket specifically designed to launch small to medium satellites and satellite constellations into orbit.

The company aims to make access to space more flexible and cost-efficient and the satellites that will be launched by Isar’s Spectrum vehicle will have many uses: They have the capacity to bring internet connectivity to rural communities and those in developing countries—currently around one-third of the earth’s population. They can also enable multiple use cases around Earth Observation or Navigation and will have a key role in fighting climate change and enabling smart mobility.

Isar Aerospace uses advanced technologies and a high degree of automation in its manufacturing. The type of state-of-the-art equipment used in the production of its launch vehicles did not previously exist and the leadership team recognized the valuable role that venture debt could play in its development, alongside the $400M+ raised through equity financing from leading European VCs including HV Capital, Earlybird Venture Capital, Lakestar and the NATO Innovation Fund. In June 2024, ATEL lent Isar Aerospace $20M to help finance its requirements for cutting-edge manufacturing equipment.  

The satellite market is expected to be worth $1TN by 2040. Launch is the key bottleneck in that revolution and we expect Isar Aerospace to play a major part in it by enabling flexible and cost-efficient access to space.

LuxWall: Greening Our Buildings

LuxWall is a Michigan-based manufacturer of vacuum-insulated glass that improves the energy efficiency of buildings and homes by reducing building energy draw and lowering heating and cooling losses.

After an initial seed round in 2021, the company raised $33M of Series A financing in 2023, attracting investments from leading funds including Bill Gates’s Breakthrough Energy Ventures, Khosla Ventures and the Danish firm, 2150.

As businesses and governments alike race to reduce their carbon emissions, demand for LuxWall’s innovative products was such that expanded production facilities quickly became an imperative. LuxWall CEO Scott Thomsen and his team looked to venture debt to fuel the necessary expansion without diluting the equity of their shareholders, and ATEL Ventures stepped in.

In August 2024, LuxWall Michigan Governor Gretchen Whitmer joined Scott Thomsen and state and local officials in officially opening the company’s new clean-energy manufacturing compound in Litchfield, MI, which will host the world’s first high-volume vacuum-insulating glass production facilities. The Litchfield site is part of a two-phase, $165-million investment that will create 450 new jobs. The new facility features automated manufacturing, quality control, office space and laboratories to produce advanced, energy-efficient window products that will be sold in the U.S., Canada, and Europe, helping to mitigate the environmental impact of commercial and residential buildings.

Borrowing Against a Better Future

Ambitious startups like Astranis, Isar Aerospace and LuxWall are working on solutions to some of the world’s most pressing challenges, and they are not alone. Hundreds of entrepreneurs are pushing the boundaries in other fields too, including mobility, telecommunications, green chemistry and biotech.

To do that requires not just vision and technical knowhow, but capital–capital to develop new tools and equipment, to hire talent, to build or lease production facilities, and navigate complex regulatory environments.

For these and other startups, venture debt is an essential component of the financing stack and ATEL Ventures is proud to support them.