If you’re an early-stage startup founder wondering whether venture debt belongs in your capital strategy, this episode of Startup Success is for you. Marshall Hawks joins us to pull back the curtain on venture debt: what it actually is, why founders use it, how to run the process without wasting months, and how the right lender relationship can become an underrated asset.
Marshall has spent more than two decades in venture banking and lending, including a long tenure at Silicon Valley Bank, and he’s the author of the newly released Venture Debt Deals. His motivation for writing the book was straightforward. Founders have a clear guide to venture capital in Brad Feld and Jason Mendelson’s Venture Deals, but far less transparency on venture debt, even though it shows up in countless startup capital stacks. Marshall wrote Venture Debt Deals to close that gap with a practical playbook for founders, first-time CFOs, and operators, built from the real-world patterns and case studies he has seen across hundreds of transactions.
What is venture debt, and what problem does it solve?
At its core, venture debt is a loan for venture-backed companies, provided by venture banks or private credit funds. Marshall compares it to a car loan: you borrow a defined amount, and you repay it over a multi-year period, often three to five years, sometimes longer. Depending on the deal, repayment may be straightforward amortization over time, or structured so more is paid back later in the life of the loan.
The reason founders reach for venture debt is usually simple: it buys time.
In many cases, it’s used to extend runway by three to nine months beyond what an equity round alone would provide. That extra time can be valuable when it allows a company to hit milestones before the next raise, or to avoid raising equity at a moment when dilution would be especially painful. For later-stage companies, venture debt can also be a bridge to breakeven, allowing the company to avoid another equity round when it’s close to being cash-flow positive or EBITDA positive.
“The idea with venture debt is generally that you are trying to get an extra 3, 6, 9 months of runway on top of the runway provided by the equity dollars you’ve raised.”
~Marshall Hawks
Why do early-stage startups use venture debt right after raising equity?
Founders often assume debt is mainly for later stages. Marshall says the opposite is true if you look at deal volume. Many venture debt transactions happen at the early stage because venture banks can deploy smaller checks repeatedly and build long-term customer relationships.
He also points out that what “Series A” means has changed. Years ago, a Series A might have been $3–4 million. Now it can be $30 million on the low end, and far larger at the top end. More importantly, many Series A companies today already have a product in market, real revenue, and meaningful traction.
In that environment, venture debt becomes less about desperation and more about optionality.
A key dynamic Marshall emphasizes: banks often provide a commitment that you don’t have to draw immediately. You can line up venture debt and then decide later whether to use it. If the business is working and traction is strong, drawing debt later can create enough extra runway to push an equity raise out by a quarter or two—sometimes long enough to justify a meaningfully higher valuation. That’s the moment venture debt can reduce dilution in a real, measurable way.
And if things aren’t working? You can choose not to draw.
That “commit now, decide later” feature is a big part of why venture debt shows up earlier than many founders expect.
Venture banks vs. private credit: who provides venture debt?
Marshall frames the market as two main buckets.
- Venture banks are a subset of commercial banks that focus on the innovation economy. He mentions SVB, HSBC, and Stifel as examples. These lenders typically play earlier and with smaller deal sizes, often below $20 million per company, sometimes up to around $30 million.
- Private credit funds sit on the other end of the barbell. They are not banks. They don’t take deposits. Instead, they raise capital from third-party investors and deploy it into loans. They also don’t care where you do your banking, which becomes part of their appeal. Private credit tends to show up when companies need larger checks, often $30 million and up, with many deals in the $50–$100 million range, and sometimes much larger for highly scaled businesses. These are typically companies with real scale: tens to hundreds of millions in revenue.
Why does private credit matter more now than it used to?
Marshall points to a shift happening across 2024–2026: more companies have bigger capital needs while staying private longer.
AI is an obvious driver. Training models can demand huge amounts of capital. Hardware and chips can introduce hard-asset financing needs. Even vertical AI applications may have substantial CapEx. The same is true in other frontier sectors including defense tech and aerospace, where physical buildouts and infrastructure matter.
In these scenarios, venture debt can finance spending that would otherwise require selling more equity; potentially 5%, 10%, or 20% more of the company just to fund capital requirements. Debt doesn’t eliminate risk, but it can improve capital efficiency when the business fundamentals and future financing access are strong.
If a bank lends money to your startup, do you really have to move all your banking?
Yes, if a bank is lending to you, it will generally require that you keep the majority of your deposits and day-to-day banking with that institution. That requirement is part of how banks make the overall economics work.
However, Marshall highlights a meaningful change after SVB’s failure in March 2023. Banks that provide venture debt have become comfortable with companies maintaining multiple bank relationships as a corporate best practice. Practically, this means you can keep your primary banking with the lender bank while also maintaining secondary accounts elsewhere, so you’re not forced to open accounts and move funds in a panic if market conditions shift quickly again.
Private credit funds, on the other hand, don’t require you to move deposits. They may take a security interest across accounts, but they typically sell flexibility as part of their offering.
What does the venture debt process look like, and how long does it take?
Three to five months is typical. It can be faster in special cases such as an acquisition timeline. When it runs far beyond five months, it’s a warning sign for how the relationship may go.
Marshall breaks the process into three phases:
- First is diligence.
- Second is term sheet negotiation.
- Third is the legal documentation process, which often takes six to eight weeks after you’ve chosen a lender.
He also contrasts it with venture capital fundraising. VC diligence is deeper because you’re selling ownership and often adding a board member, closer to a marriage. Venture debt diligence is generally lighter, and lenders can often leverage work already done for the equity raise and learn from conversations with the venture investors who funded the company.
What are lenders underwriting when they decide to do a venture debt deal?
This is one of the most founder-relevant “behind the scenes” points in the episode.
Marshall explains that, unlike VCs, many venture lenders are not primarily underwriting whether you’ll become the next category-defining winner. Instead, they are often underwriting whether you’ll be able to raise additional equity in the future.
“Most venture lenders are making an educated guess as to whether [your company] is going to be able to successfully raise additional venture capital in the future.”
~Marshall Hawks
That’s a subtle but important distinction. If a company goes a bit off plan, the lender wants to believe the company can still access the equity markets. Those equity dollars are frequently the safety valve that allows the company to keep operating and service the debt.
This lens also explains why lenders care so much about who your investors are, what your recent round looked like, and the general credibility signals around the company. It’s not purely about the spreadsheet. It’s about future financing access.
Should founders run a wide competitive lender process, like they do with VCs?
The “cast a wide net” approach often backfires in venture debt.
Marshall’s view is that three to five lenders is usually enough, with five being the high end of usefulness in most standard situations. If lenders feel like they’re one of ten or twelve in a grid and the company is only shopping for price, they often reduce effort because the probability of winning feels low.
“You don’t need to take the shotgun approach when running a venture debt process.”
~Marshall Hawks
A focused process tends to create better outcomes because it allows founders to build real working relationships with the humans on the other side of the table. It also saves time. Managing a huge lender process can become a drain, especially for founder-led finance functions or lean teams.
He does acknowledge one exception: if you expect the deal to be difficult to place and anticipate many “no’s,” then talking to more parties can be rational. But for most companies with a recent equity round or strong momentum, a tight process generally performs better.
Is venture debt purely transactional, or can the lender relationship become strategic?
Marshall emphasizes that the best outcomes come when founders treat lenders as partners. The minimum bar is the loan facility itself—right size, right structure, fair economics. But in his experience, companies that are proactive and transparent with lenders often get more flexibility and more help over time.
He makes a point that should resonate with any founder: startups are an exercise in putting out fires. If lenders don’t hear what’s going well and what isn’t, they’ll assume the worst. Proactive communication, even when it’s bad news, can make lenders more comfortable and more willing to be accommodating if the company needs changes or additional support.
He also notes that senior venture lenders can be surprisingly well-networked. They talk to many companies, see patterns, and can connect founders to people who help solve specific problems, especially if the founder is clear about their top priorities and shares them early.
What does the venture debt landscape look like in early 2026?
Marshall believes most of the chaos from the SVB crisis of March 2023 has played out, though individual market participants may still come and go. He emphasizes that SVB is not “gone.” SVB’s U.S. business was acquired by First Citizens, and in his telling, First Citizens has treated it as a strong business that failed for reasons separate from the underlying venture lending model. As a result, SVB is “back in market.”
He also notes that the disruption created more options. Some talent moved to other firms, which reinforced or helped build venture lending groups at other banks. In parallel, private credit has expanded rapidly into venture and innovation lending.
He describes private credit as especially active right now, driven by higher interest rates and the increasing scale of private technology companies. In his view, the market has more providers and more capital than at any point in the historical data. That’s good for founders in the short term.
Marshall offers the following note of caution: provider durability matters. In cycles, some lenders enter enthusiastically and later exit when conditions change. Founders should evaluate whether a lending partner is built to stick around through a turn in the market.
What should founders do next if they’re considering venture debt?
If venture debt can buy meaningful runway to hit milestones, delay dilution, or bridge to breakeven, and you have credible access to future financing, then it may be a strong fit.
If the business is uncertain, the path to capital is unclear, or debt would create pressure you can’t absorb, the same tool can become a constraint rather than an advantage.
Learn more: Venture Debt Deals by Marshall Hawks
Marshall’s book goes deeper into the mechanics: term sheet structure, negotiation considerations, and real examples across companies and scenarios. If venture debt is on your roadmap, or you simply want to understand it better, Venture Debt Deals is worth studying. The case studies really stand out by illustrating how venture debt plays out in real operating environments.
A big thank you to Marshall Hawks for bringing depth and nuance to a topic that’s often misunderstood. His perspective gives founders a clearer framework for thinking about venture debt as part of a broader capital strategy.
Intro 00:01
Welcome to Startup Success, the podcast for startup founders and investors. Here you’ll find stories of success from others in the trenches as they work to scale some of the fastest growing startups in the world, stories that will help you in your own journey. Startup Success starts now.
Kate 00:19
Today I am joined by Marshall Hawks, author of the new book Venture Debt Deals. Marshall is a longtime leader in venture lending. He has more than a decade of experience at Silicon Valley Bank, across private credit relationship management and leadership. In this episode, we break down what venture debt really is when it makes sense in a startup’s capital strategy and how founders should navigate today’s evolving venture debt landscape. Marshall shares a practical behind the scenes look at how lenders think, the mistakes founders often make, and the principles every founder should understand before signing a venture debt deal. I listened to Marshall’s new book, Venture Debt Deals, and really enjoyed it, particularly the use case studies he cites from his career on when a startup benefited from venture debt. Please welcome Marshall Hawks to the show. Thanks Marshall for being here today. I’m looking forward to get into the details of venture debt, but before we do that, I think it would be helpful if we could get a quick overview of your background, and then what inspired you to write this book?
Marshall Hawks 01:49
Sure. Hey, Kate, good to be on the Burkland Startup Success podcast. (Thank you.) It’s a bit surreal, ironically, because I have been a 20 year venture bank and venture lender until I started to write this book and left that industry. But I go back far enough, I used to have hair, and it wasn’t gray, those not looking at the video of this. I’m a very bald, grayed out, bearded guy, and I worked with Jeff Burkland, the namesake of Burkland Associates, when it was just him and there was no business more than 15 years ago. So, sorry for making Jeff now old with me, but it’s exciting to be on the podcast for this great firm that you guys have built. (Thank you. Thank you.) Yeah, I’ve had a long time in venture banking and lending across four different firms, most recently, and for the majority of that time, I was at Silicon Valley Bank, or SVB, the sort of dominant player in the banking and lending to startup industry. We had our fun moment in the sun in March of 2023 but I stayed on for a couple of years after that, before leaving to write this book. And really the impetus for this was another book called Venture Deals by Brad Feld and Jason Mendelson that probably a lot of your audience might already know, and maybe they have a copy or two on their bookshelf, like I do. It’s been out for about 14 years now, and it really pulled back the cover on venture capital fundraising and what that looks like, what you’re going to see in a term sheet. How do investors think, how are they structured? A lot of that stuff 15 years ago was very opaque, and you couldn’t as an entrepreneur or CFO, founder, you didn’t have a lot of insight into sort of how the venture capital world works. Now there’s a lot more transparency in that process, largely because of that book, as well as a lot of other people have written about the industry since then. Anyway, that book came out, I thought there should be a book like that on venture debt. Took me a solid 14 years to get the courage to leave my day job and write that book with the help of some other folks along the way, but that is really the inspiration for putting pen to paper. And I was fortunate enough to have Brad Feld help in some of the early drafts, provide some commentary to what I was writing up until the point where I was locking the manuscript, and then he’s the top blurb on the back. So I feel very fortunate to be alongside or getting the help from some very smart people, people who are smarter than me that is on the topic. But that was sort of the inspiration why I wanted to get the book out to the broad masses. And it’s really geared towards founders, entrepreneurs, first time finance people who just maybe haven’t touched the venture lending ecosystem yet.
Kate 04:26
And I would say to everyone listening that what makes the book I found really enjoyable was all of the use case studies that you included throughout your career. I mean, it brought back a lot of memories of, I mean, Yahoo days and everything. So that’s, I think, why this is such a helpful book. I listened to it, so I heard firsthand, you know, how these different companies used venture debt, which I don’t think people realize. There’s a lot of use cases. So let’s start at the top. What is venture debt?
Marshall Hawks 05:00
Yeah, it’s a good place to start. Kate. Venture debt is a type of financing that comes from banks or private credit funds. We’ll talk about those two parties, I’m sure in a little bit. Usually it’s a chunk of money, some percentage of perhaps the equity round you might have just raised as a company. And it is money that acts like a car loan, really. It goes out 3, 4, 5, maybe six years. You borrow it typically mostly up front or sort of all at once, and then it usually either pays down in a straight line over time, or it might, in certain cases, go out and be sort of paid back all at the end of the life of the loan. And the idea with venture debt is generally that you are trying to get an extra 3, 6, 9 months of runway on top of the runway provided by the equity dollars you’ve raised. Or perhaps you’re trying to, you’re later stage and you’re getting close to break-even, and you’re trying to avoid having to go raise another equity round when you’re that close to perhaps getting to cash flow positive or EBITDA positive operations. So it’s really a tool that can be used both wisely and poorly, depending on the context, but in the best case, is the tool that is going to bridge a little bit of the gap to your next round and help minimize the dilution that you as a company and founding team and your employees have to take when you go out and raise your next venture capital equity round, or perhaps get to break even.
Kate 06:28
That’s helpful. And I always, you know, saw it used like when you’re trying to getting to revenue, or you’re, you know, getting close to your next round. Where I was confused is when startup founders use it earlier, and we have a lot of early stage founders listening who have just raised that round. Why would you use this in addition to an early stage round?
Marshall Hawks 06:54
Yeah, well, early on in a company’s life cycle, the bulk of venture debt deals are to early stage companies, ironically enough. The volume, really number of deals, and that’s the venture banks that are playing at that early stage, typically, because the deal sizes are smaller. And what banks are mostly doing at that stage, when they’re lending companies money, is it’s kind of customer quasi customer acquisition financing. They are lending money, because one of the requirements typically is that you would have to move all your banking to whatever lender bank is providing this capital. So it’s sort of a way to bring in a company provide them some useful capital, but get the full banking relationship, and ideally you hope that can run for the life of the company, which could be years beyond the debt or, you know, maybe even a decade or two, depending on the company we’re talking about and how successful they are. So that’s what sort of banks are doing at the early stage. And that’s where the bulk of the volume of the deals in venture lending happen. The total dollars deployed in terms of quantum or size of the money is actually usually later stage companies, where some company might be borrowing $100 million $150 million. And while the volume of deals is lower, you know, the dollar is deployed is higher, so, and that’s where private credit tends to play. Why, so, going back to sort of, why would you want to do this at the early stages of the company. These days, when you raise a Series A I think dollars equity, dollars raised, have continued to sort of inflate a little bit that Series A, when I started my career, I don’t know about you, Kate, but that a Series A round was like 3 or $4 million back in early 2000s. Now, a Series A could be $30 million, maybe on the low end, and $100 million on the high end. So the nomenclature is a little wonky, and behind that is both the size and scale of the venture industry, but also most companies, when they raise a Series A these days, their product is in market. They have revenue. There’s significant business progress. It’s not that they have raised on the back of a napkin or a PowerPoint presentation. That happens occasionally still, but I think these days, more often or more commonly, you’re in the seven figures of revenue, sometimes when you are at least on a run rate basis for Series A financing. So bringing in a little bit of venture debt, the nice part when banks provide venture debt is that they a lot of times, will allow a company to wait to actually use it or draw it down, meaning you could have a commitment from a bank to lend you money, but you don’t have to make the decision to draw it immediately. So it’s a nice tool to provide you optionality. Six, 12, 18 months down the road, as you have made progress on your plan, whatever has happened in the business, you could say, Wow, things are really working, and an extra three or six months of runway right now would be wildly impactful, because we could raise venture capital a quarter or two later, and the valuation that we could justifiably get from the market could be meaningfully higher. That’s the place where I think it gets used at the early stages, and a lot of people like to have the commitment there so that they can then decide whether to draw it or not. And the nice part is that if something is not working, or perhaps you don’t, you’re not really confident in the business, you don’t have to draw the money. And you know, sometimes lenders may not want the money drawn, but you’ve at least got that option already. Or you go to a place where you’re low on your own dollars that you’ve raised from the Series A round that we’re talking about.
Kate 10:23
Got it. And you’re obviously, every founder wants to preserve as much equity as possible. So, I mean, that’s the big draw here. And then later stage, obviously, it’s probably just you want to do something, you want to get to that next round, you want to get to that M&A, what is, I mean,
Marshall Hawks 10:43
Yeah, the later stage market is where most of the private credit players in this industry are. Private credit, for those who don’t know
Kate 10:49
Yeah, I was just gonna say maybe, maybe that would be helpful, if you, yeah.
Marshall Hawks 10:54
Yeah. The two players again, venture banks, there’s a subset of the commercial banking market like SVB and HSBC and Stifel that focus on the innovation economy as part of one of their industries they want to target, and they provide venture debt. They’re usually going to be the ones going earlier with lower dollar lending, call it sub 30 million on the high end, but probably more sub $20 million to any one company. On the other end of the market, if you will, like, there’s a barbell early stage and later stage, there are private credit firms. And there’s a variety of types of private credit firms out there. Some of them are publicly traded, ironic given the name. Some of them are fully private, but they’ve all typically raised third party capital like a venture fund from limited partners or investors that they are going to deploy and lend to other companies. They’re not banks. They don’t take deposits. They don’t care about whether you keep your money at one bank or seven banks. In fact, that’s one of their selling points. Frankly, they give you flexibility as a company. And where they tend to play is when a company needs call it $30 million or more on the low end, but actually these days, you know, 50-$100 million so these are companies that are much more scaled. They’re doing tens, if not hundreds, of millions of dollars of revenue, or at least on a run rate basis. And they have real businesses that are likely headed towards some decent to better than decent, good, great outcome. And you can use these bigger dollar venture debt transactions as a way to, again, bridge to profitability, maybe buy a company. In today’s market, at the first part of 2026 there’s a lot of companies, AI in general, but if you’re a company who is a LLM, you’ve got a ton of capital needs to train models. If you’re a chip company, you’ve got a bunch of hard asset financing, even if you’re a vertical application in AI you might have, you know, hard asset CapEx financing, frontier tech, defense tech, aerospace, those places have big CapEx needs, so you might want to use venture debt or the debt markets to finance, you know, that kind of spend in your business to avoid again, having to raise that amount or more of equity, and you know, have to sell off 5%, 10%, 20% of your business to outside investors if you can avoid it.
Kate 13:09
Of course. I mean, that makes a lot of sense. And then, you know, you mentioned in one of the differences, the private credit market, they’re not looking to acquire you as a customer for your other banking needs. So is that something that founders should be aware of? It’s totally standard that if you’re in an early round and you’re going through venture, you know, debt lender, like a bank, like an SVB, that it will be a requirement?
Marshall Hawks 13:35
Yeah, that any bank lending you money, whether it’s SVB, HSBC, Stifel or others, they’re gonna say you need to keep the majority, if not more, of your capital, and your day to day banking at that one institution. However, one of the big changes post SVB’s failure in March of 23, and I should say they’ve been acquired by First Citizens, who I worked for for two years, and are very much back in market, and we’ll talk about maybe the landscape here at some point, they are back and not gone. In fact, they’re still arguably one of the, if not the dominant player, but one of the big changes that was caused by that weekend of turmoil that we all, if you were in the industry, got to experience, is that every bank who provides venture debt is comfortable allowing companies as sort of a corporate best practice to have multiple banking relationships. So that could be, you know, your primary bank who’s providing you debt, and maybe a secondary bank. You might have a couple of other banks, maybe three or four. The bulk of the money you’ve raised, and all your sort of day to day transactional stuff will be required to go to the bank that’s providing you debt. But you could have, you know, a JP Morgan account open, or, you name it other bank account, just sitting there and holding a, you know, a small amount of money, so that you don’t have to face the big problem back in 23 was that just to get a new account opened in, you know, a day and move money was really challenging. So having it, having accounts open, ready, even if sort of not dormant, but just not being actively used, like that’s generally allowed across all of the bank lenders. And again, private credit doesn’t care, right? Allow you to have the money everywhere, however, they will take a security interest in those you know, dollars you have at all those banks, but, but they don’t control where and how you have to do your banking.
Kate 15:20
Got it. Thank you for clarifying that. And so what is involved in the fundraising process? One of the things I feel like I heard in your book when I was listening to it, is, you don’t want to cast a wide net when you’ve decided you’re going to pursue some venture funding, because, you know, we get so many VCs on here, and they’re like, you know, target all these people. But you were saying that isn’t the way to go, if I was, if I heard that correctly, or.
Marshall Hawks 15:49
From the seat I come out of, having probably directly lent money to several 100 companies, including some of the case studies we talked you talked about at the top end of the show, Airbnb, Twitch, Clearco, or Clearbanc, up in Canada is one of the case studies as well, amongst many others. What I think most lenders, good lenders, the firms that you would ideally want to partner with, they can sort of sense if they’ve become, I don’t know, one of a dozen lenders in a grid where you’re just as a company shopping for the best terms and pricing, and that’s all that matters, and they still might want to compete and win your business. But what I find has led to better outcomes in the mid and long term for the company that is, and even the lender for that matter, is when you as a company, unless you’re in a situation where you know it’s going to be maybe the debt you’re asking for because of your particular situation might be challenging to get. That might be a situation where you should go talk to a lot of parties, because you’re going to get a lot of no’s from people. (Got it.) But if you’ve raised a recent equity round, or the business is jamming, even if you’re low on liquidity, but the business is jamming and headed really in the right direction. Three to five debt providers, whether that’s banks or banks or private credit funds, seems to me like five is on the upper end of usefulness, because you get beyond that, and everyone can tell they’re one of many. You to a company, the benefit you’re what you’re trying to get out of this relationship, in addition to just the right debt, I hope is the right partner, which means you got to build a good working relationship with the humans involved, and that starts in the sort of diligence and sort of take off, if you will. You can still get a competitive process going. You can still talk to more than one or two firms, but anytime a lender senses that they’re going to be one of, you know, 10 banks or private credit funds in a grid, the effort they’re going to put into trying to win that deal, in most cases, is going to go down. And they might not want to spend the time and effort because they know the likelihood they win is very low, versus if you said, hey, you know, I really want to spend time with you, Kate and your firm, and get to know you. You’re one of a few, you know, here’s what we care about. You can sort of get to, I think, a better outcome, and, oh, by the way, save yourself a ton of time, because managing 10 to 12 lenders in a process, you know, is kind of a gong show, versus you have, you know, three or four firms you’re talking to, you can, you know, prioritize how you want to spend time there. But also, you just don’t have to do a bunch of managing, of talking to all the different parties. You can sort of focus your efforts. And I think that just is going to lead to a better outcome. And I know that there are, you know, debt brokers and other people out there that work in the industry. They may not agree with the statement I’ve just thrown out there, but I I would just say that from my experience, the best relationships which led to me providing and my firms providing the most help to companies came out of smaller processes that led to good relationships that got better over time, because we continued to work with these founders and CFOs and boards. So you don’t need to take the shotgun approach when a venture debt process. And by the way, that also might be a little different than venture capital fundraising, depending on where you are and the dynamics of the company. You might need to talk to more firms, because more are going to fall out of the process. I think the hit rate in venture debt is going to be higher, so you don’t need to go out and carpet bomb for lack of the lending industry to the best terms.
Kate 19:18
That’s why I wanted to bring it up because it’s different. So then, what as a lender, what are you looking for when you’re evaluating a startup, and what should a founder expect? You know, in the diligence process?
Marshall Hawks 19:32
Well, the timeframe for a venture debt fundraise at the top would be, you know, the average fundraise is going to be three to five months. You know, that’s a normal sort of time frame, you could definitely be shorter if you really needed to, and everyone was motivated to work for a reason, M&A or something, if something’s happening to move faster. Have I seen plenty of processes go way longer than five months? Absolutely, that’s usually not a good leading indicator of how a relationship’s gonna go. So is that three to five months timeframe, and that’s really cut into three parts. One is the upfront diligence. The next would be, is if you’ve gotten a term sheet from a lender, or term sheets for that negotiation of the terms, and then, once you’ve picked your party you’d like to work with as a company, sort of six to eight weeks of legal process with outside counsel involved, and you’re sort of officially papering, legally, documenting this capital and your ability to use it the front end process. I mean, the front and back end process, negotiation of the term sheet certainly could be, could be time intensive too. But really, the front end diligence is time intensive, and the legal process can be time intensive, depending on what’s going on, sucking up people’s calendars. The good news is diligence from venture debt funds tends to be, I wouldn’t call it, an order of magnitude lower, but significantly lower depth and breadth compared to a venture capital fundraise. Because venture capital is you’re buying a stake in the company. It’s kind of the equivalent, as everyone talks about over the years, of getting married to this partner who may join your board, and that you have to be able to deal with them as a human. A lender is probably more of like a long term relationship, but not getting married. You can change your lender over time, so it’s not the same kind of depth. And then lenders get the benefit of usually coming on the heels of some kind of equity financing. So that means they can leverage some of the diligence process done by the venture capitalists and all the work that you might have as a company already done for those firms, the lenders can maybe get a lot of that same diligence info. The lenders usually want to talk to the general partners who’ve invested in the company, so you can get their thesis and sort of check and balance that. The other thing that you get the benefit of, as a lender, again, you can make your own judgments about the quality of venture capital firm diligence these days or lack thereof, depending on the situation. But lenders also get the benefit of, you know, if a venture firm they know and have worked with over the years, or a number of firms are already investors in a company and a couple board members are there that they know, they are those venture firms have done the credibility check. Are the people involved not necessarily going to be successful, that’s a different question. Is Marshall capable of pursuing the thing that he and his company are trying to build? Venture lenders are not usually deep technologists. We understand lots of things at a generalist level and something special to Tech, we might know pretty well, but I don’t know that I could check whether someone has the programming chops, the AI research chops, the electrical engineering background that I could really understand if they have the credibility. So that’s something lenders are looking at. And then, frankly, one of the things that we should talk about is like, what are lenders really underwriting? And most lenders are making a bet later stage, sometimes it’s more is a company going to be the dominant player and the winner in the market? But that’s a smaller subset of situations. Most venture lenders are making an educated guess as to whether this company that they want to lend money to is going to be able to successfully raise additional venture capital in the future. So if something’s off plan, or if you know, company doesn’t quite get to break even, or if they don’t hit all our milestones, like, what do we think the odds are this company will still be able to access the equity markets, because those equity dollars will be, you know, largely used to continue to service the debt that might have been provided. And that’s a different question than Is this the next Open AI or SpaceX.
Kate 23:34
Got it. That’s an easier question, like an easier hurdle, easier hurdle.
Marshall Hawks 23:39
It’s definitely, it’s definitely easier for sure. Still doesn’t mean lenders get that question right all the time, but, they are doing more art than science to sort of figure out and triangulate in, you know, current market, with the progress to date, with who’s involved, how much capital are we providing at what terms, like, sort of, what do we think the likelihood that, again, somebody’s gonna be able to get to raise capital in the the private markets again. And that’s really what they’re spending time on again, later, later stage, companies taking money from private credit, which is a smaller chunk of the transaction, that’s a little bit more of like we’re trying to pick a winner dynamic but most times, it’s just, are we as lenders, I still say we, even though I’m not a lender anymore, trying to see if this company is going to be able to or take our best guess as to whether they’re going to raise equity again.
Kate 24:25
That’s really helpful that you pointed that out. And then, because of that, and because there’s usually a venture capital partner involved, does the lender help the founder at all? Are they a resource at all, or is it just transactional? Here’s your money, and then you all sit on the sidelines and wait and see.
Marshall Hawks 24:46
Sure. I mean table stakes, in my mind is that hopefully you’ve picked the right partner, and they’ve provided capital that is impactful on the right terms and structure and economics. So let’s assume that that’s already been done, and maybe some companies and general ledgers might say that’s good enough, you know, that’s better than a lot of times that we’ve seen this play out. But I think that under, under sells and really underserved the company of what could be, you know, more impact, a more impactful relationship over time. What I write about in the book, and from my own experience over, two plus decades is that the best sort of situations were where a company thought of their lender, in these cases, where it was my direct experience, thinking of me and my firm as really a strategic partner. Up here to sort of who’s on the board, even, and that they gave us all the same kind of transparency of both the good and bad of how the business was doing, and ironically enough, that is something that actually will make lenders more comfortable with the business, given that we all know founders and startups are an exercise in putting out fires, and people are running around with their from one thing to the next. Like, if we don’t hear what’s working and what is not working directly, we have to then guess at what is not working and sort of that’s that’s harder for, you know, lenders to do. So when you got the open, transparent communication that was proactive, even if bad news that actually made me and my firms that I worked for as lender more likely to be more accommodative and more helpful in a process. So that could be as simple as you need a little more time with the debt to repay it, or something changing in the debt itself. But also, here’s some things beyond the debt that you could get from lenders if you put the time and effort in around you know, they talk a lot to businesses, small, large, medium size. They see other people navigate similar problems. If you can sort of share with them the things that you are trying to solve or top one, two priorities in the company. They may not always be able to solve those problems or help but they might surprise you sometimes with who they know, who they can connect you to, who they run into, because it was top of mind and you told them what your problem was, they can sort of connect some dots for you. And I think more often than not, founders maybe don’t take advantage of at least the more senior members of the firm they might be taking debt from. They’re equally networked in this industry as you know general partners at venture funds. So it’s to your I think, generally no downside and all generally upside, if you treat those people like strategic partners who have the potential to help you in ways you may or may not be able to anticipate, but just keeping them apprised and informed, and I’ve got a bunch of examples of stuff in the book about all this, there’s just a lot of potential upside with minimal downside for founders to make sure that they are proactively communicating with their lending partner.
Kate 27:47
That’s why I wanted to call it out. I did not know that until I read your book that it can be a partnership type relationship like that, where you know you’re on the phone and helping out. I really thought of it as just your you know what we all think of a bank loan, right? Like, here’s the money and then. So I thought that was really interesting when I talked to founders, you know, as I was listening to your book, many didn’t know that as well, so I that was very helpful that you walked us through that. We’re getting to time, and I’m gonna talk about your book at the end, but before we get there, could you give us kind of a picture of the landscape right now? Because the SVB crisis changed things. It still seems, maybe I’m wrong, is it in flux a little or no? Has it all been played out?
Marshall Hawks 28:39
Or all of the things from the chaos of March of 2023 I think, have largely played out. Are there potentially people coming in and out of the markets? Maybe. But let’s talk about from March of 23 when SVB and I got to experience it on two sides of the international border, because I was helping support SVB Canada at the time, it was a very fun moment for all of both the people who worked at SVB, sort of traumatic to this day, to be honest, as well as for everybody in the innovation economy, which was not fun up until the point where everyone knew the money wasn’t gonna just go to zero, or their deposit dollars wasn’t gonna go to zero. Funny enough, so SVB failed, and in the US was purchased by First Citizens Bank. And First Citizens has been about as a good owner of SVB as you could hope. And they sort of, from day one, said, We know the bank didn’t fail because the business model was bad, or that venture lending was really risky. It was sort of a top of the house messing up your bond buying, which was unrelated to what SVB did as a core business. So they’ve gotten SVB back in business and jamming. So that’s great for founders, that is. It is the biggest player in the space. But there was some attrition out of SVB, both internationally, because those were all sold off differently, and then, you know, a subset of people in the US moved to different firms. But that, from a founder and company perspective, means there’s actually a bunch of either reinforced, newly reinforced, venture lending groups at existing banks that were already in the industry, and even some newly minted ones. So HSBC, Stifel in particular sort of new players in the space. So there are more options for companies from venture banks on one hand, and that was mainly SVB that caused all that. On the other hand, or the other bucket, private credit is sort of the asset class du jour these days. Venture lending is a small subset of private credit, but there are more private credit firms coming into the innovation space than my entire 25 years in this industry. And that’s a little bit because of SVB’s, the vacuum of SVB happening, but actually more of the motivation is from both interest rates being higher so there’s more economic return a private credit fund can potentially get. But also the size of what startups given how big private companies have gotten. You know, SpaceX and Open AI are bigger than most public companies in terms of valuation and scale, and there’s a bunch of companies that are on that long tail from there. So there are companies that have credibly been able to ask for and get 50, 100, 200, a billion dollars of capital from lenders. And that was not true up until about three or four years ago. So there were a lot of private credit firms that are some of the biggest in the world that have come into the innovation economy, the likes of Apollo, Excel, Elrock, you name it. So the number of private credit firms is also at a high point. And you see this, I think, just generally, in the data, both the number of lenders is a high point. But actually 2024 and 2025 both were the highest number of dollars deployed from venture lenders into the innovation economy as far as we have data going back, basically. By a decent step up. So there’s just a lot of capital and a lot of providers initially. That’s good for founders, great. Only thing to watch there is the longevity of all the participants. It can be great when there’s lots of people clamoring for business, but if some of somebody you work with decides to get out of the business, which has happened in the past when a market starts to turn over, which could happen at some point in our industry or in the innovation economy. That’s where you have to just be careful with perhaps somebody who might be new to the space, you know, making sure you’ve gotten comfortable that they’re going to stick it out and be a long, a good, long term partner.
Kate 32:25
That makes a lot of sense. Okay, so we didn’t get to cover everything. So everyone listening, the book is venture debt deals. I will say I enjoyed listening to it. Again, the use case stories are fabulous, super interesting. But you also go into like, what to do when negotiating, what to look for, terms, so I highly recommend picking it up as a resource if you’re going to pursue this level, this area of financing. Is there anything you want to call out that we didn’t cover that’s in the book that would be helpful.
Marshall Hawks 33:07
Well, it’s very kind of you just to say it was a good listen, if only because I was the one self-narrating it. So I’m glad you enjoyed my radio voice and face in there. In general, I hope I’ve done a good job that yeah, you balance some of the dryness of just the specific finance topics and what’s in a term sheet with some more practical application of real world companies using real situations and seeing how that’s played out. And if I’ve done my job well enough, I hope it’s both useful entertaining for founders and CFOs and others, and also actually useful for lenders and investors and sort of makes everybody just more educated and better counterparty so they can work faster and get to better outcomes more quickly. So that’s what I’d leave you with. If I’m fortunate enough to have people listening, go pick up a copy of the book.
Kate 33:56
I think they should. Venture Debt deals again, for those of you pressed with time, it’s a great listen, very easy to download on Audible or whatever your player is. Thank you so much for being here, Marshall. We have not covered venture debt on the show, so I’m really excited to have you here and walk our audience through it.
Marshall Hawks 34:15
Thanks for having me, Kate. I’m glad to be the best and only person to cover venture debt to date.
Kate 34:21
There you go. I love it. Thanks again.
Intro 34:23
You’ve been listening to Startup Success. To make sure you don’t miss out on future episodes, subscribe to the show in your favorite podcast player. Like what you hear? Tap the number of stars you think the show deserves in Apple podcasts. For more tools and resources for your own startup success, check out burklandassociates.com. Thank you so much for listening. Until next time.