Choosing the right financing structure requires understanding the trade-offs between different debt products. This guide provides a comprehensive comparison to help you evaluate which option best fits your company's profile, growth stage, and capital needs.
Quick Comparison Matrix
| Feature | Venture Debt | ABL | Direct Lending | Mezzanine |
|---|---|---|---|---|
| Typical Size | €2-15M | €5-50M+ | €10-100M+ | €5-30M |
| Interest Rate | 10-14% + warrants | S + 250-450 bps | S + 550-850 bps | 12-16% + warrants |
| Tenor | 3-4 years | 1-3 years revolving | 5-7 years | 5-7 years |
| Collateral | Subordinated lien | First lien on assets | First lien | Subordinated/unsecured |
| Covenants | Growth-oriented | Asset-based | Maintenance | Covenant-lite |
| Best For | VC-backed startups | Asset-heavy businesses | Sponsored LBOs | Growth companies |
Detailed Comparison
Venture Debt
Advantages
- Non-dilutive capital for VC-backed companies
- Flexible, growth-oriented covenants
- Quick execution (4-6 weeks)
- Minimal operational constraints
Disadvantages
- Requires VC backing typically
- Warrants dilute equity (5-15%)
- Limited availability for profitable companies
- Higher cost than senior debt
Ideal For:
VC-backed startups raising 25-50% of last equity round
Asset-Based Lending
Advantages
- Flexible borrowing base
- Lower cost than venture debt
- Available to non-VC companies
- Scales with business growth
Disadvantages
- Requires substantial assets (AR, inventory)
- Regular collateral audits
- Can be complex to administer
- Advance rates vary by asset quality
Ideal For:
Asset-intensive businesses needing working capital flexibility
Direct Lending / Private Credit
Advantages
- Large facility sizes available
- Certainty of execution
- Flexible documentation
- One-stop shop (unitranche)
Disadvantages
- Higher pricing than banks
- Requires private equity sponsor typically
- Call protection periods
- Significant origination fees
Ideal For:
PE-backed LBOs and growth companies with €10M+ EBITDA
Mezzanine Debt
Advantages
- Higher leverage possible
- Minimal covenants
- Longer term than senior debt
- Can fill equity gaps
Disadvantages
- Expensive (12-16% + warrants)
- Subordinated to senior lenders
- Equity dilution from warrants
- Limited availability
Ideal For:
Companies needing additional leverage beyond senior debt capacity
Decision Framework
Key Decision Factors
1. Company Stage & Backing
VC-backed → Venture Debt | PE-backed → Direct Lending | Independent → ABL or Mezzanine
2. Asset Profile
Heavy AR/Inventory → ABL | Light assets → Venture Debt or Private Credit
3. Use of Proceeds
Working Capital → ABL | Growth Investment → Venture Debt | Acquisition → Direct Lending | Recap → Mezzanine
4. Cost vs. Flexibility Trade-off
Lowest cost → ABL | Most flexibility → Mezzanine | Balance → Unitranche/Direct Lending
Explore Each Option
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