How European Startups Can Access Venture Debt

How to Leverage Venture Debt to Scale Your European Startup Fast and Efficiently

Startups in Europe often face a challenge: how to raise enough growth capital without giving away too much equity too early. Venture debt, a specialized form of startup financing, offers a powerful bridge to fuel growth while preserving founder control. But the process to actually access venture debt can feel complex without the right roadmap.

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What is Venture Debt and Why Should European Startups Consider It?

Venture debt is a loan provided to startups that have already secured some venture capital. Unlike equity rounds, it usually does not immediately reduce founder ownership but gives additional cash to hit growth milestones, invest in technology, or extend runway.

It’s structured as term loans or credit lines with fixed or flexible repayment terms.

Lenders often take warrants (small equity rights) to compensate for higher risk.

It complements equity financing by filling capital gaps without the immediate cost of further dilution.

European startups use venture debt primarily to finance scaling, equipment, marketing, and hiring before the next equity round.

It requires startups to have a proven business model, reliable revenue projections, and credible venture investors.

Why it matters: Venture debt allows European startups to preserve equity and grow faster by optimizing the capital structure without depending exclusively on equity markets which have become more competitive and cautious in 2025.

Step 1: Understand If Your Startup Qualifies for Venture Debt

Access to venture debt depends on meeting certain conditions because lenders evaluate cash flow risk and market potential carefully. Most European venture debt lenders want startups that:

Have raised at least a Series A or B round from reputable venture capital firms. This demonstrates product-market fit and investor confidence.

Exhibit recurring revenue streams or strong commercial traction, often monthly recurring revenue (MRR) for SaaS companies.

Have clear financial projections showing how the loan will help achieve milestones or generate cash flow.

Operate in sectors attractive to lenders, such as fintech, healthtech, cleantech, SaaS, deep tech, or climate innovation.

Maintain a capable, experienced management team prepared to handle debt covenants and reporting requirements.

Why it matters: Startups without these criteria often struggle to secure venture debt or receive unfavorable terms. Preparing to meet these eligibility filters is the foundation of a successful application.

Step 2: Identify Leading Venture Debt Providers in Europe

Europe has multiple specialized firms that offer venture debt to startups. Knowing who to approach and how they work helps founders target the right match efficiently:

Kreos Capital (now part of BlackRock): The largest provider in Europe, offering €5-30 million loans. Known for supporting scale-ups like Klarna and Babylon Health. Typical deals include flexible amortization and warrants, suitable for startups post-Series A.

European Investment Bank (EIB): Offers long-dated venture loans, often combined with guarantees. Targets capital-intensive sectors like climate tech and deep tech. Provides stability and scale with lower interest rates due to public backing.

Claret Capital Partners: Flexible structured debt mainly for tech and life sciences, with emphasis on use for product milestones. Often paired with light warrants and growth support.

Deutsche Handelsbank: Focuses on early-stage SaaS and fintech startups from the DACH region. Uses revenue-based lending models that tie repayments to recurring revenues ideal for companies scaling sales fast but without strong balance sheets.

Silicon Valley Bank UK/EU (HSBC Innovation Banking): Provides term loans and revolving lines of credit tailored for venture-backed startups, especially fintech and SaaS. Offers grace periods and interest-only phases.

ViVentures and Round2 Capital: Smaller niche providers focusing on emerging tech hubs helping with quick access and simpler terms for seed-to-Series A companies.

Why it matters: Approaching the correct lender for your stage, industry, and growth needs increases approval chances and ensures better deal alignment.

Step 3: Prepare Your Startup Thoroughly for the Venture Debt Application

Applying for venture debt is substantially different from pitching equity rounds. Preparation focuses on transparency and financial diligence:

Create detailed financial models projecting revenues, cash flow, burn rates, and repayment capacity under various scenarios.

Develop a clear narrative on the use of funds whether for product launches, hiring, marketing, or extending runway. Tie this to KPIs like ARR growth or customer acquisition cost.

Prepare legal and compliance documentation reflecting clean cap tables, no outstanding liabilities, intellectual property ownership, and governance clarity.

Assemble supporting documents: term sheets from prior equity rounds, VC investor letters of support, incorporation papers, and bank account statements.

Anticipate lender questions about exit strategy, investor involvement, and potential downside scenarios. Be honest and ready to defend assumptions.

Engage your existing VC investors early since lenders often rely heavily on their validation or introductions.

Why it matters: The better the preparation, the faster due diligence completes and more favorable the loan terms will be. Venture debt lenders operate on tight risk frameworks you must satisfy.

Step 4: Negotiate Terms Smartly and Mitigate Risks

Venture debt comes with obligations startups must understand to avoid future pitfalls. Focus on these negotiation points:

Interest rates and fees: Clarify fixed vs floating rates, arrangement fees, commitment fees, and whether fees are payable upfront or amortized.

Warrants and equity kickers: Determine warrants’ strike prices, expiry, and equity dilution impact. Negotiate if possible to minimize ownership loss potential.

Repayment schedule: Request grace periods or interest-only periods, matching repayment start to growth milestones. This supports cash flow management.

Covenants and restrictions: Understand covenants regarding liquidity minimums, cash runway, fundraising restrictions, and asset pledges. Push for flexibility.

Prepayment penalties: Check if early loan repayments incur penalties; startups prefer flexibility as future equity raises might repay debt early.

Information rights: Negotiate limits on lender access to board updates and sensitive company data to protect confidentiality.

Why it matters: Venture debt is expensive capital understanding and negotiating terms ensures you protect runway and shareholder value while gaining necessary growth funding.

Step 5: Use Venture Debt Strategically for Growth and Runway Extension

Smart deployment of venture debt capital is essential. Common use cases among European startups include:

Bridging between equity rounds: Extend runway by 12-18 months so next fundraising happens on stronger terms without down rounds.

Capital expenditure: Finance product development equipment or tech infrastructure while preserving equity.

Scaling teams and operations: Hire key talent, expand sales force, or increase marketing spend quickly during high-growth phases.

Market expansion: Fund timely entry into new geographical markets or launch new product lines.

Acquisitions: Finance smaller bolt-on startups without engaging equity dilution rounds.

Why it matters: Using venture debt in alignment with specific milestones reduces dilution, controls cash flow, and supports valuation growth ahead of future fundraising.

Step 6: Real-Life Venture Debt Success Stories Across Europe

Several prominent European startups have successfully tapped venture debt to supercharge their growth:

Klarna layered €25 million from Kreos Capital in addition to equity rounds to fuel international expansion, combining growth capital while preserving valuation.

GetYourGuide used venture debt from Kreos to invest in product enhancement and enlarge sales teams preceding rapid growth phases.

Babylon Health accessed EIB-backed loans to invest heavily in AI-healthcare infrastructure while maintaining founder equity.

Solarisbank secured revenue-based lending from Deutsche Handelsbank to fund expansion before their large-scale VC rounds.

Northvolt leveraged EIB venture debt to support capital intensive battery manufacturing projects aligned with EU sustainability goals.

Why it matters: These successes demonstrate how diverse use cases and lenders can fit into your specific scaling strategy. Understanding the story behind the figures helps startup leaders plan better.

Bonus: Government and Public Programs Supporting Venture Debt Access

Several European agencies and public-sector programs partner with private venture debt lenders to reduce perceived risk and offer better terms:

European Investment Fund (EIF) guarantees and co-investment models boosting lender confidence to lend to innovative but higher-risk startups.

European Investment Bank (EIB) direct venture lending for strategic sectors including cleantech, healthtech, and AI.

National initiatives like Germany’s EXIST or France’s Bpifrance providing grants and loan guarantees in combination with private sector lenders.

EU Horizon 2020 & Tech EU programs injecting multi-billion euro funds into loans and quasi-equity for deep tech and sustainability startups.

Why it matters: Leveraging these programs reduces financing costs and enhances lender appetite, giving startups access to more flexible and cheaper capital.

Final Thoughts

Venture debt in Europe is no longer a niche financial tool but a strategic lever enabling startups to balance growth and ownership preservation in a cautious capital market. Startups that want to maximize runway, accelerate scaling, and retain control must learn to navigate eligibility, provider selection, term negotiation, and strategic fund deployment effectively.

2025 stands as a transformative year when venture debt has matured, institutions like EIB and EIF deepen their involvement, and startup founders embrace balanced capital structures as a competitive advantage. Following the steps outlined here will prepare you not just to access venture debt but to make it a pillar of your startup’s sustainable growth journey.

FAQs

1. How can European startups apply for venture debt?

Startups typically approach specialized lenders after raising Series A or B rounds, prepare detailed financials, and seek lender introductions often via existing VCs.

2. Which lenders provide the most venture debt in Europe?

Major players include Kreos Capital, the European Investment Bank, Claret Capital, Deutsche Handelsbank, and HSBC Innovation Banking.

3. What is the typical loan size and cost?

Loans range from €500K to €30M, with interest rates between 8-15%, plus arrangement fees and warrants.

4. Can pre-revenue startups access venture debt?

Generally no. Most lenders prefer startups with some recurring revenue or strong equity backing and proven traction.

5. How should startups negotiate venture debt terms?

Focus on interest rates, warrant dilution, repayment schedules, covenants, and prepayment penalties. Seek flexibility to safeguard the runway.