A closer look
Venture debt is the ultimate Trojan horse of Silicon Valley. Startups burning through cash desperately need runway between equity funding rounds, but they don't have revenue or hard assets to secure traditional bank loans. Enter venture debt lenders, who provide the cash at a high interest rate, but demand 'warrants'—the legal right to purchase company stock at a deeply discounted price later. This brilliant deal structure allows the bank to act like a traditional lender on the downside, while reaping insane venture-capitalist-style equity windfalls if the startup hits a unicorn valuation.
