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CA Final · Advanced Financial Management · Startup Finance

Which statement about venture debt for a startup is correct?

Venture debt is a loan facility extended to venture-capital-backed startups, often with warrants attached, used to extend runway with less dilution than raising equity. It carries repayment and interest obligations, so it is neither a grant nor public equity.

  1. AIt is a debt facility given to venture-backed startups, often with warrants, that complements equity with less dilutionCorrect
  2. BIt is equity raised from the public through an IPO
  3. CIt is a government grant with no repayment obligation
  4. DIt is a facility available only to companies with positive cash profits and no investors

Explanation

Venture debt is provided to startups that already have venture equity backing, usually carries interest and sometimes warrants, and extends runway with less dilution than equity. It is not a grant or an IPO.

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