The Smart Way Founders Are Funding Growth in 2025

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As the VC world has tightened its belt, a different type of funding has grown into a powerful tool for smart operators. It is called venture debt.

Founders are increasingly using it to extend their financial runway, hit critical growth targets, and hold onto more of the business they are building.

The global venture debt market is projected to hit $27.83 billion in 2025. It is expected to keep growing fast, reaching over $71 billion by 2033.

Here is how venture debt works and why it is becoming a go-to strategy for founders who want to maintain control.

1. It Fills the Gap Left by a Slower VC Market

The fundraising environment has changed. Global venture capital funding fell by 38% in 2023. Early-stage funding in the United States dropped by 43% during that same period, and the slowdown has continued.

This means founders need to make every dollar last longer.

Venture debt helps companies do exactly that. It is a type of loan for startups that have already raised some money from VCs. Founders use it to bridge the gap between their equity funding rounds. A venture debt deal can extend a company's cash runway by 12 to 18 months.

This extra time allows a company to achieve key milestones, like growing revenue or launching a new product. Hitting these goals puts the founder in a much stronger position to negotiate a higher valuation during their next equity round.

2. You Get the Capital with Less Dilution

The biggest reason founders turn to venture debt is to protect their ownership. Raising an equity round always means giving away a piece of the company. Venture debt is different.

Because it is a loan, it is far less dilutive.

Here are the typical terms. The company pays interest on the loan, with rates often ranging from 10% to 16%. The lender also gets warrants, which are the right to buy a small amount of company stock in the future. These warrants usually represent a tiny fraction of the company, often between 0.25% and 2.0% of the loan amount.

Compare that to an equity round, where founders might sell 20% or more of their company. With venture debt, founders and early investors keep much more of their stake.

This is especially valuable for companies in frontier industries. For businesses in sexual wellness or alternative finance, specialized debt lenders are often more understanding and accessible than traditional banks.

Traditional banks see "cannabis" or "adult wellness" and immediately say no. Venture debt lenders who specialize in these sectors understand the business models. They know the regulatory landscape. They are willing to work with you.

3. The Numbers Make Sense for Strategic Growth

Venture debt is not just about survival. Smart founders use it as a growth accelerator.

The math works when you think about it strategically. Let's say you need $2 million to hit your next major milestone. You have two choices.

Option 1 is to raise an equity round. You might give up 15-20% of your company for that $2 million.

Option 2 is venture debt. You pay 12-14% annual interest and give up maybe 1% in warrants. You keep the other 14-19% of your company.

If your company is growing fast, that extra ownership is worth way more than the interest payments.

The key is using the debt for things that generate returns. Hiring proven salespeople. Launching marketing campaigns with clear ROI. Building inventory for products you know will sell.

4. Real Companies Are Using This Right Now

Venture debt is not just a theoretical tool. It is being used right now by successful companies to accelerate growth.

Take Clari, a platform that uses AI to help companies with revenue. In early 2024, Clari secured a $75 million venture debt facility. They are using that capital to expand their business and solidify their position as a market leader, all without diluting their existing shareholders with another equity round.

This is the playbook. Use debt to fund predictable growth activities. Save equity for bigger, transformational investments.

Founders use this capital for specific, strategic purposes. They might use it to hire more engineers, increase their marketing budget to acquire customers, or purchase inventory to meet demand.

By using debt for these predictable growth expenses, they save their valuable equity for bigger, long-term investments. It is a strategic move that gives them flexibility and control, allowing them to build the company on their own terms.

5. How to Position Your Company for Venture Debt

Venture debt lenders want to see certain things before they write a check.

First, you need to have raised equity funding from a reputable VC firm. This shows that professional investors have done their due diligence and believe in your business.

Second, you need recurring revenue or a clear path to profitability. Lenders want to know you can service the debt.

Third, you need a specific plan for the money. "General working capital" is not enough. They want to see exactly how you will use the funds to grow the business.

The best time to approach venture debt lenders is right after you close an equity round. You have momentum, fresh cash, and 12-18 months to prove your next set of milestones.

The Bottom Line

Venture debt is not right for every company. But for founders who have proven their model and need capital to scale, it can be a game-changer.

The market is growing because it solves a real problem. Founders get the capital they need without giving up control. Lenders get steady returns with upside potential.

For companies in stigmatized industries, it can be especially valuable. While traditional banks slam the door, specialized venture debt lenders are open for business.

The key is to think about debt strategically. Use it to fund growth activities with clear returns. Save your equity for the big swings that will transform your business.

Done right, venture debt lets you build the company you want to build, on your own terms.

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