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Venture debt is a type of debt financing provided to venture-backed companies by specialized banks or non-bank lenders. Unlike traditional bank loans, venture debt is typically used by startups that are not yet profitable, and have a higher risk profile. It's often a complement to equity financing and provides additional runway or working capital for growing startups.
Venture debt can come in a variety of forms, such as term loans or lines of credit, and is often secured by a company's assets or accompanied by warrants. The key advantage of venture debt is that it allows companies to leverage their existing equity financing to obtain additional capital without further diluting their shareholders. However, like all forms of debt, it does need to be repaid and carries the risk of default, which can result in significant financial and operational challenges.
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