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Most startup financing on the Peninsula is equity: founders sell part of the company for cash. Venture debt is the other tool. It is a loan made to a company that already has venture investors, used to stretch the cash from an equity round further. For decades one Santa Clara bank dominated it. Then, in March 2023, that bank failed in two days. The market had to rebuild.
This page explains how venture debt works, how the landscape changed after Silicon Valley Bank's failure and which lenders describe Peninsula offices. It is general information, not investment, legal or tax advice. Loan terms vary widely, so have a lawyer and your board review any offer.
How venture debt works
A venture lender is betting on two things: that the company's investors will keep funding it and that the company will reach its next milestone. Unlike a normal bank loan, venture debt is not based on years of profits. It is based on the strength of the equity round and the people behind it.
A typical deal includes:
- A term loan drawn all at once or in tranches tied to milestones.
- An interest-only period at the start, followed by monthly payments that repay the principal over a set term.
- Fees at signing and sometimes when the loan is repaid.
- Warrants, the right to buy a small amount of company stock at a set price. This is how the lender shares in the upside.
- A security interest in the company's assets, sometimes including intellectual property, or a promise not to pledge those assets to anyone else.
- Covenants, rules the company must follow, such as keeping a minimum cash balance or hitting revenue targets.
Lenders often size a loan as a fraction of the company's most recent equity round. Our venture capital glossary defines warrants, dilution and the other terms used here.
Kinds of lenders
| Lender type | How it works | Trade-offs |
|---|---|---|
| Banks with venture teams | Lend to startups that also keep deposits and accounts with the bank | Lower rates, but often require the company to bank there and meet tighter covenants |
| Venture debt funds | Raise money from investors and lend it to startups | Higher cost, larger or more flexible loans and fewer banking requirements |
| Business development companies | Publicly traded lenders that make venture and growth loans | Similar to funds; financial results are public |
| Revenue-based and equipment lenders | Lend against recurring revenue, receivables or specific equipment | Narrower use; cost depends on the asset |
When venture debt makes sense
- Extending runway. A loan right after an equity round can add months before the next raise.
- Buying equipment. Labs, hardware and manufacturing gear can be financed against the assets themselves.
- Bridging to a milestone. A company close to a product launch or a clinical result may borrow to reach it before raising at a higher valuation.
- Insurance. Some companies arrange a credit line they hope never to use.
It makes less sense for a company with no clear plan to its next round. Debt has to be repaid on schedule. If the company misses its targets, lenders can demand repayment, sweep cash or push for a sale. Founders should model a downside case before borrowing. Our term sheet basics explain how equity terms interact with these rights.
Silicon Valley Bank and March 2023
Silicon Valley Bank was founded in 1983 and grew into the default bank for startups and venture firms, with its longtime headquarters in Santa Clara and a large venture lending business. It held deposits for a large share of the region's startups.
In early March 2023 the bank announced losses on bond sales and a plan to raise capital. Founders and investors, many connected through the same group chats, pulled deposits within hours. On March 10, 2023 California regulators closed the bank and appointed the FDIC as receiver. Two days later federal officials said all depositors, including those above the insurance limit, would be protected. On March 27, 2023 First Citizens BancShares agreed to buy SVB's deposits and loans. First Citizens now runs the former Silicon Valley Bank business under the name First Citizens Innovation Banking. The old svb.com address redirects there.
What changed afterward
- Deposits spread out. Many startups now keep accounts at more than one bank or use services that spread deposits across several banks to stay within insurance limits.
- Bankers moved. Several large banks hired former SVB bankers in 2023 to build or expand venture banking teams, as widely reported at the time.
- Funds gained ground. Non-bank venture lenders and business development companies took a bigger share of new loans as some founders became wary of depending on a single bank.
- Costs rose. Higher interest rates in 2023 and 2024 made borrowing more expensive. Founders paid closer attention to requirements that tie loans to deposit accounts.
The lesson most founders took was not to avoid banks but to avoid putting all their cash and credit in one place. Our banks and credit unions guide covers local branches for personal banking.
Lenders with Peninsula offices
These lenders publicly describe offices on the Peninsula. Listing them is not an endorsement. Compare several offers before you sign.
Western Technology Investment
Western Technology Investment, often called WTI, lists Portola Valley as its headquarters, with team members in New York and Boston. A 2022 lender review described it as making venture loans since 1980 and providing more than $7 billion to over 1,400 companies. Our Portola Valley page covers the town.
TriplePoint Capital
TriplePoint Capital lists Menlo Park as its base and was founded in 2006. It provides venture growth loans, equipment financing and revolving credit to venture-backed companies. A related company, TriplePoint Venture Growth BDC Corp., is publicly traded.
Hercules Capital
Hercules Capital, a publicly traded business development company, dates its first investments to December 2003. For years its press releases were datelined Palo Alto and listed an office at 400 Hamilton Avenue. Its investor site now lists its headquarters at 1 North B Street in San Mateo, still on the Peninsula.
Banks
The former Silicon Valley Bank business, now called First Citizens Innovation Banking, still lends to startups. Several other national and regional banks run venture banking teams with Bay Area offices. Ask your investors which banks their other companies use and compare terms. Our startup banking guide covers deposit accounts and the banks that serve founders.
Tips before you borrow
- Borrow when you do not need to. The best terms come right after a strong equity round.
- Read the covenants twice. Watch for "material adverse change" clauses and rules that let the lender call the loan if investors stop supporting you.
- Check the deposit requirements. Some loans require you to keep most of your cash at the lender's bank.
- Model the warrants. They are small but real dilution. Add them to your cap table.
- Ask your board. Experienced investors have seen many loan agreements and know which terms cause trouble.
Good to know
- Venture debt complements equity; it does not replace it. Most lenders want to see recent venture backing.
- Climate and biotech companies often use equipment loans for labs and pilot plants; see our climate tech investors guide.
- For equity basics, start with our venture capital guide.
Frequently asked questions
What is venture debt?
Venture debt is a loan made to a startup that has already raised money from venture investors. It usually comes with interest, fees and warrants that let the lender buy a small amount of stock. Founders use it to extend their runway between equity rounds without selling as much of the company.
Is venture debt cheaper than equity?
In dilution terms it usually is, because the company gives up only a small warrant stake. But the loan must be repaid on schedule whatever happens. Missing a payment or breaking a covenant can give the lender significant control. It suits companies with a clear path to their next milestone.
What happened to Silicon Valley Bank?
California regulators closed Silicon Valley Bank on March 10, 2023 after a rapid run on deposits. The FDIC took control. Federal officials then said all depositors would be protected. First Citizens BancShares agreed to buy SVB's deposits and loans on March 27, 2023. First Citizens now calls the former SVB business First Citizens Innovation Banking.
Which venture lenders are based near Palo Alto?
Western Technology Investment lists Portola Valley as its headquarters and TriplePoint Capital lists Menlo Park. Hercules Capital long ran from Palo Alto and now lists a headquarters in San Mateo. Many banks with venture lending teams also have Peninsula offices.
When should a startup avoid venture debt?
Debt is risky for a company without a clear plan to reach its next round or profitability, since the loan still has to be repaid if things go wrong. It is also a poor fit if the covenants would restrict the company's ability to operate. Talk to your investors and a lawyer before signing.