Launch Capital
May 5, 2026
The short answer: Venture debt is a loan made to a company that has already raised equity from venture investors. It can extend runway or fund specific purchases with less dilution than another equity round, but it must be repaid, so it suits companies with a reliable path to doing so.
Lenders in this space usually lend to companies backed by institutional investors. They look at the quality of those investors, your growth, your cash position and your plans to raise again. Loans often have a fixed term, interest payments, and sometimes an initial period where only interest is paid. Lenders may also ask for warrants, which give them the right to buy a small amount of equity later.
Because the loan is secured against the business, expect covenants, which are rules you must follow, such as reporting requirements or limits on other borrowing.
Venture debt is often considered in a few situations.
Debt adds fixed obligations. If revenue falls short or a financing round is delayed, repayments still come due. Covenants can limit your flexibility, and a default can give the lender rights over your assets. Founders sometimes underestimate how stressful this can be when conditions change.
Debt is generally a poor fit if your path to the next raise is uncertain, or if you are using it to cover ongoing losses with no plan to repay. Do not treat it as free money simply because it does not dilute ownership.
Ask yourself what the money is for, how you will repay it in a weak scenario and what the lender can do if you miss a payment. Compare the full cost, including fees and warrants, not only the interest rate. Talk to your existing investors, since they may have views or experience with lenders.
Loan documents are complex. Have a qualified lawyer review them, and speak to an accountant about the effect on your financial statements and taxes.
Venture debt is only one option. Founders may also look at equity, revenue-based financing, bank lending or government programmes for Canadian companies. Each has its own cost and level of risk. Comparing at least two options side by side, using the same assumptions, will give you a clearer picture of what each really costs your company.
Launch Capital is a Toronto venture capital firm and family office that provides growth capital to Canadian technology companies. We are operators who have built and exited companies ourselves. If you are building something real, send us your pitch.
