Venture-Debt Slowdown in 2024–25: What’s Next?
After a record-setting run in 2021 and early 2022, the venture debt market has entered a significant period of contraction. The slowdown that began in late 2023 has extended into 2024 and now 2025, signalling a structural shift in the startup financing landscape. Rising interest rates, cautious investor sentiment, and a less aggressive startup growth environment have all contributed to this cooling trend.
But what does this mean for startups that have relied on venture debt as a key non-dilutive financing tool? How are lenders adjusting? And more importantly, what comes next?
In this post, Rodller will unpack the causes behind the venture-debt slowdown, analyze its impact on different stakeholders, and explore the emerging strategies and funding alternatives shaping the future of startup capital.
What Is Venture Debt and Why Does It Matter
Venture debt is a type of loan provided to early-stage, high-growth startups, typically backed by venture capital. It’s often used to extend runway between equity rounds, finance growth without dilution, or support working capital.
In the bullish years of 2020–2022, venture debt emerged as a favored instrument for startups and investors alike. It allowed founders to preserve equity, while lenders gained access to high-growth companies with relatively low risk, especially when paired with robust VC backing and low interest rates.
Global venture debt deal value reached over $30 billion in 2022, making up nearly 20% of all venture funding in some major markets. Since then, the landscape has changed significantly, with current trends pointing to a notable decline in both deal volume and investor appetite.
What’s Driving the Venture Debt Decline
1. Higher Interest Rates
The U.S. Federal Reserve and other central banks have aggressively raised interest rates since 2022 to combat inflation. As of mid-2025, rates remain elevated, significantly increasing the cost of capital.
Venture debt, which typically carries variable interest rates, has become more expensive. What was once seen as a cost-effective way to avoid equity dilution is now a heavier financial burden, especially for pre-profit companies.
2. Collapse of SVB and Lender Retrenchment
The high-profile collapse of Silicon Valley Bank (SVB) in early 2023 was a major shock to the venture lending ecosystem. As one of the largest players in venture debt, SVB’s exit triggered a wave of caution among other lenders and startups.
While some non-bank lenders and fintech firms tried to fill the void, the institutional confidence and scale of SVB have not yet been fully replaced.
3. Declining Startup Valuations and Growth Expectations
Many startups have seen valuations reset in the past 18 months. The “growth at all costs” model has fallen out of favor, replaced by a focus on efficiency, profitability, and prudent scaling.
Lenders have followed suit, tightening underwriting criteria and avoiding startups with aggressive burn rates. The result: fewer approvals, smaller deal sizes, and more stringent covenants.
4. Increased Risk Aversion
The macroeconomic environment remains uncertain. From geopolitical tensions to slowing global demand, lenders are prioritizing risk management. Venture debt, which often lacks the hard collateral seen in traditional loans, is inherently riskier—especially in a down market.
What the Slowdown Means for Startups and Investors
1. Tighter Runways and Harder Trade-offs
Startups that previously relied on venture debt to bridge rounds or extend cash runways are now facing difficult trade-offs. Many are being forced to either:
- Raise equity at lower valuations (down rounds).
- Cut costs more aggressively, or
- Seek alternative forms of financing (e.g., revenue-based financing, grants, or even crowdfunding).
2. Increased Power for Investors
With venture debt less available, startups are more dependent on equity investors, shifting negotiating power back to VCs and institutional players. Term sheets are becoming more investor-friendly again, and many are reasserting liquidation preferences and downside protections.
3. Pressure on Lenders to Reassess Risk Models
Lenders are rethinking their strategies, pricing models, and target customers. Some are shifting toward later-stage, more profitable companies. Others are introducing tighter covenants or requesting equity kickers.
Many debt funds are also sitting on “dry powder” but waiting for more favorable conditions to deploy capital.
What’s Next?
Despite the current contraction, venture debt is not going away. Instead, the next phase will likely be more disciplined, strategic, and aligned with startup fundamentals. Here are five trends shaping the future:
1. Rise of Alternative Debt Providers
With traditional banks more cautious and SVB’s void still unfilled, alternative lenders such as private debt funds, fintech lending platforms, and speciality finance firms are stepping in.
These players often offer more flexible structures and faster approvals, though usually at higher costs. Expect to see more startups partnering with newer, tech-enabled lenders.
2. Blending Equity and Debt: Hybrid Models
Hybrid financing instruments are gaining traction. For example, structures combining small equity stakes with debt-like repayments tied to revenue or milestones are becoming more common.
These offer founders a middle path—less dilution than traditional equity but more flexibility than fixed-term loans.
3. Revenue-Based Financing (RBF)
Revenue-based financing has emerged as an alternative to traditional venture debt. In RBF, startups repay loans as a percentage of their monthly revenue, aligning lender returns with company performance.
This model is particularly attractive for SaaS and e-commerce businesses with recurring revenues. While not suitable for all startups, RBF is gaining ground as a founder-friendly option in a tighter credit environment.
4. AI-Driven Credit Assessment
Venture lenders are increasingly turning to AI and data analytics to assess creditworthiness. By analyzing real-time financial metrics, product usage, and customer retention, lenders can move beyond traditional financial statements and make more dynamic lending decisions.
This trend could open doors for earlier-stage startups that have strong traction but limited balance sheets.
5. Return of Structured Deals and Venture Leasing
Other niche instruments like venture leasing—used to finance equipment, software, or infrastructure—are experiencing renewed interest. Structured deals involving warrants, convertibles, or milestone-based funding tranches are also coming back.
These allow both lenders and borrowers to share risk more intelligently and create custom terms based on each company’s risk profile.
Strategic Recommendations for Founders
In the face of this changing debt landscape, here are some actionable tips for startup founders:
1. Extend Runway Proactively
Rather than waiting until you’re six months from running out of cash, plan well in advance. Identify potential debt or equity sources early, and negotiate from a position of strength.
2. Optimize for Capital Efficiency
VCs and lenders alike are prioritizing efficiency. Focus on customer retention, sustainable growth, and clear paths to profitability. These metrics will matter more than top-line growth in the current environment.
3. Build a Strong Banking and Lender Network
With consolidation in the market, having relationships with multiple lenders can provide optionality. Don’t rely on one partner—diversify your exposure, especially if you’re approaching a financing event.
4. Consider Non-Dilutive Capital Alternatives
Explore grants, customer prepayments, R&D credits, or revenue-share models as alternatives to traditional debt. Many regional development funds or accelerators offer non-dilutive support to promising ventures.
5. Be Transparent with Existing Investors
Keep your equity investors in the loop. They can often help you secure debt, act as guarantors, or introduce trusted lenders. In tough times, aligned investors can make the difference between survival and failure.
Will Venture Debt Bounce Back?
The long-term outlook for venture debt remains cautiously optimistic. Once interest rates stabilize and macroeconomic uncertainty recedes, capital is likely to return, though perhaps more selectively.
Lenders will remain focused on:
- Strong unit economics;
- Experienced management teams;
- SaaS or recurring revenue models;
- Late-stage or near-profitable ventures.
The “easy money” phase is over. But for startups with healthy fundamentals, venture debt will continue to be a valuable part of the capital stack, albeit with new rules and expectations.
Final Thoughts…
At Rodller, we believe that the venture-debt slowdown is a reflection of broader changes in the startup ecosystem. From higher interest rates to changing investor sentiment, the rules of startup financing are being rewritten.
While the immediate future may feel uncertain, founders who adapt quickly by embracing capital efficiency, building lender relationships, and exploring alternative financing can still thrive.
As we move into the latter half of 2025 and beyond, venture debt won’t disappear. But it will evolve, becoming leaner, more selective, and more integrated with the overall funding journey.
Adaptation, not panic, is the name of the game.
About Rodller
Rodller (www.rodller.com) provides Digital Marketing, Fundraising and Application Development Services. With offices in Singapore and France we serve both Startups and Fortune 2000 firms. We use a next-generation Portal to combine the use cases of Digital Marketing, Fundraising and Application Development in tangible processes.
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