Author(s)

Xinyue Yu

Corresponding Author

Xinyue Yu

ABSTRACT

Debt can be considered one of the crucial ways startups can acquire capital. Unlike traditional debt, which requires startups to have positive cash flow and enough tangible assets to secure the loan, venture debt is one alternative that provides startups additional capital to reach important milestones. This paper investigates the benefits of venture debt financing for the growth of startups through analyzing three theoretical models and conducting an empirical regression analysis. With these three analytical models, it is admitted that venture debt is preferable from three main perspectives, cost-saving, minimization of dilution, and optimized capital structure. Additionally, this research uses a hierarchical regression model to analyze the relationship between VD-backed transactions and success rate [Initial public offering (IPO), trade sale, and follow-up funding]. Results conclude that venture debt can explain the specific variance of the growth of startups, and startups with VD-backed have more promising futures. These results reveal that venture debt should be one robust motivator for startups’ developments. While the results provide insights into the advantages of venture debt financing, more future research is recommended.

KEYWORDS

Venture debt, Venture capital, Financing, Startups