Venture debt financing helps early-stage companies achieve strategic milestones before seeking additional rounds of venture capital. For example, funding from Vencore allows companies to drive continued intellectual property development, launch key new products, or build brand awareness. Achieving these milestones increases company valuation, resulting in less equity dilution from future rounds of financing.
In the illustration above, notice that:
- With a $1M loan, the company extends its cash runway and reaches milestone #2 without requiring further venture capital. Valuation increases from $6M to $16M, and equity is significantly less diluted.
- Without a $1M loan, this company runs out of cash before milestone #2 and needs to raise money when its valuation is $6M — resulting in significant equity dilution.