Despite becoming a more common financing tool for growth-stage startups across Europe, venture debt remains widely misunderstood. Many founders still hesitate to consider it seriously, largely due to outdated or misguided beliefs about how it works, what it costs, and when it should be used.
These misconceptions can delay access to strategic capital at a critical time—often when speed, runway, and minimal dilution matter most. Let's unpack the five most persistent venture debt myths and reveal what founders really need to know.
Myth #1: "Venture Debt Is Too Risky—It's Just Like a High-Interest Credit Card"
The Reality: Venture debt is not predatory lending. It's a structured, professional financing instrument designed specifically for VC-backed companies with strong growth trajectories.
Key Facts:
- Typical interest rates: 8-15% annually (not 20-30%)
- Structured repayment schedules aligned with business growth
- Lenders are sophisticated institutions with long-term relationships
- Often interest-only periods during growth phases
Yes, debt carries repayment obligations. But when used strategically—to extend runway between equity rounds or fund specific initiatives—it's significantly less dilutive than raising more equity. The "risk" is manageable if timed correctly.
Myth #2: "Venture Debt Means Giving Up Equity"
The Reality: Venture debt is fundamentally non-dilutive. You don't sell shares. You borrow money and pay it back.
About Warrants:
- Warrants typically represent 1-8% of the loan amount
- This translates to ~0.1-0.5% of company equity
- Vastly less dilutive than raising the same amount in equity
Example: Raising €2M in venture debt with 5% warrant coverage might dilute you by 0.3%. Raising €2M in equity could dilute you by 10-20%. The difference is massive.
Myth #3: "Venture Debt Is Only for Late-Stage Startups"
The Reality: While it's true that venture debt is easier to access at later stages, many lenders work with Series A and even well-funded Seed companies.
What Lenders Look For:
- Recent equity funding from credible VC investors
- Clear path to profitability or next funding milestone
- Recurring revenue or predictable business model (SaaS, fintech)
- Strong founding team and market opportunity
If you just raised a €3-5M Series A from tier-1 investors, you likely qualify for €1-2M in venture debt. You don't need to wait until Series B or later.
Myth #4: "My Investors Won't Like It If I Take Debt"
The Reality: Most sophisticated VCs actively encourage venture debt when used strategically. Why? Because it preserves their ownership and extends runway.
Why VCs Support Venture Debt:
- Reduces dilution for existing shareholders
- Buys time to hit higher valuation milestones
- Signals confidence to the market
- Proven tool used by successful portfolio companies
Best Practice: Always discuss venture debt plans with your board early. Most will require consent for debt financing, but this is usually a formality if terms are reasonable. Transparency builds trust.
Myth #5: "Venture Debt Is Hard to Get and Takes Forever"
The Reality: Venture debt can actually be faster than equity fundraising if you're prepared and work with the right partners.
Typical Timeline:
- Week 1-2: Initial discussions and term sheet
- Week 3-6: Due diligence and documentation
- Week 6-8: Final negotiations and closing
- Total: 4-12 weeks vs. 3-6+ months for equity
What Speeds Things Up: Clean financials, recent equity round, clear use of funds, and working with an experienced advisor who knows the lenders.
Real Founder Perspectives
Hearing from founders who've successfully navigated venture debt helps separate myth from reality.
Julia K., CEO
SaaS Company, €12M Series A
The Myth I Believed: "Venture debt will hurt my next equity round."
"I was hesitant to raise €3M in venture debt because I worried investors would see it as desperation. Complete opposite happened. When we raised our Series B 14 months later, investors saw the debt as smart capital management—we'd extended runway without dilution and hit all our milestones."
"Our lead investor actually said: 'The fact that you raised debt shows financial sophistication.' The debt helped us raise at a 2.8x higher valuation than if we'd rushed into Series B early. Best ROI decision we made."
Marcus C., Co-Founder
Fintech Startup, Series A Stage
The Myth I Believed: "It takes forever to close."
"I assumed venture debt would take 4-6 months like our equity round. We closed in 6 weeks from first conversation to funds in bank. The key was having clean financials and working with a lender who understood fintech."
"Speed was critical—we needed capital fast to capitalize on a market opportunity. Traditional bank lending would have taken 12+ weeks. Venture debt's speed to market was a competitive advantage we couldn't have gotten elsewhere."
Sarah R., CFO
B2B Platform, Post-Series B
The Myth I Believed: "Warrants mean giving up equity."
"I was fixated on the warrant coverage percentage and almost said no to a great deal. Then I did the math: 5% warrant coverage on €4M of debt = €200K in warrants, which was about 0.4% of our company equity at that time."
"Compare that to raising €4M in equity at our Series B valuation—that would have been 8-10% dilution. The warrants were literally 20x less dilutive than equity. Once I understood the real math, the decision was obvious."
Common Thread
All three founders initially hesitated due to myths they'd heard. Once they understood the reality—through data, advisor guidance, and clear thinking—venture debt became a straightforward strategic decision. The myths delay good decisions; the reality accelerates smart growth.
When Venture Debt Makes Sense
Venture debt works best when:
You've recently raised equity
Lenders want to see VC validation and cash cushion
You're extending runway strategically
Bridge to next milestone or higher valuation round
You have predictable revenue
SaaS, fintech, and recurring models are ideal
You want to minimize dilution
Preserve equity for high-value moments
How TULA Capital Helps
At TULA Capital, we specialize in cutting through the noise and connecting founders with the right venture debt solutions. Our network of independent advisors brings:
Market Intelligence
Deep knowledge of European venture debt landscape, lender preferences, and current market terms
Lender Matching
Connect you with the right lenders for your stage, sector, and geography—saving months of trial and error
Term Negotiation
Expert guidance on covenant analysis, warrant coverage, and ensuring founder-friendly terms
Speed to Close
Streamlined process leveraging established relationships—often securing term sheets within weeks