Venture Debt: Driving Growth for Scaling Companies

Explore how venture debt fuels growth, preserves ownership, and offers flexible financing for scaling firms in Ireland and Europe.

Venture debt has evolved from a niche debt instrument into an innovative financing tool that enables early-stage companies to grow and scale. As scaling firms often lack positive cashflows, a proven track record or tangible collateral, venture debt unlocks growth and enhances scalability whilst preserving ownership.

Key benefits for borrowers looking to avail of Venture Debt:

• Flexible financing option: Offers flexibility for early-stage companies unable to access traditional debt instruments relative to their larger and more established counterparts;
• Non-Dilutive Financing: A non-dilutive form of financing, allowing shareholders to preserve control as well as enhancing levered returns;
• Signal of Credibility: Taking on debt early can underpin future capacity to repay facilities, enabling access to more traditional and cheaper financing alternatives; and
• Supporting growth milestones: Venture debt allows firms to reach critical milestones, enabling scalability and propelling them towards maturity.

State of the Market:

The venture debt market has seen significant growth over recent years. In a European context, a clear gap in growth financing has manifested on this side of the Atlantic over the past decade. This trend has presented an opportunity for lenders, seen through a sizable increase in European activity in 2024, where the total value of deals surpassed €26B. Although not anticipated to exceed 2024 values, 2025 promises to remain robust.

The Irish Outlook:

While the venture debt market in Continental Europe has evolved over recent years, Ireland has lagged its European peers. A recent report by Enterprise Ireland notes that 47% of scaling firms have considered venture debt, however they have met challenges in accessing this source of capital in Ireland.

However, this landscape is experiencing a shift. As a result of state-backing through co-investment initiatives with organisations including Enterprise Ireland and ISIF, as well as the growing prevalence of international debt providers, Irish borrowers are seeing greater choice and more competition for deals.

The growth debt financing market continues to evolve with the primary players in Ireland summarised below:

• Specialist Growth Debt Funds: Providing a non-dilutive source of capital for early-stage firms looking to expand and scale;
• Hybrid Investors: Ensuring a steady stream of growth equity and structured debt solutions;
• Banks: Opting for a more conservative approach, traditional banks emphasise positive cashflows, and typically offer working capital facilities, albeit their product offering is evolving and becoming more flexible; and
• Private Credit: Providing larger facilities to companies reaching greater maturity.

For those considering venture debt as a financing solution, the following areas provide a starting point to assess its appropriateness:

• Know your runway: Understand the duration of existing cash reserves to support current operations and how venture debt can extend this horizon;
• Detailed financial model and sensitivity analysis: Detailed credit analysis including downside cases to demonstrate resilience and repayment capacity;
• Compare costs (interest, fees, warrants): In-depth analysis of terms to calculate the true economic cost of a facility and ensure alignment with current structure;
• Assess lender credentials: Conduct due diligence to ensure that you are choosing the correct capital provider equipped to fulfil your financing requirements; and
• Existing investors: Reputable investors signal credibility and future fundraising capacity, improving lender appetite and terms for venture debt.

More lenders, more choice, greater complexity:

Venture debt has become increasingly appealing as macroeconomic volatility reshapes investor behaviour. As global conflicts and retaliatory trade measures elevate risk, equity investors are demanding higher returns, reinforcing the attractiveness of venture debt for borrowers.

Deal sizes, pricing structures and covenant packages vary significantly across providers, creating complexity and opportunity for borrowers. This variability underscores the value of specialist debt advisory support, ensuring facilities align with growth plans, risk profile and repayment capacity.

Looking ahead, the Irish market is expected to see a continued expansion in venture debt options, broadening borrower choice. As the market continues to mature, firms that are able to source the most appropriate provider will be best positioned to benefit from the growing spectrum of financing options.