What Attracts Growth Debt Investors to Startups: Key Selection Criteria

By Sunil Sonkar
2 Min Read
What Attracts Growth Debt Investors to Startups: Key Selection Criteria

Growth debt financing has lately become a lifeline for startups. The trend has moved upward after the collapse of Silicon Valley Bank that led to drop in valuations and businesses faced significant challenges. Amid such a scenario, growth debt has emerged as a vital resource for tech companies. It is a specialized form of financing. It is a kind of loan but considered as a strategic investment that is tailored to meet the unique needs of high-growth startups.


The path to securing growth debt is particularly narrow in Europe. Just about 2-5% of venture capital-backed startups make the cut in the region. It highlights rigorous criteria used by growth debt lenders. Growth debt is specifically designed for mature startups which have the potentiality for significant expansion.

One of the primary criteria is the presence of venture capitalists (VCs) on the cap table of startups. A startup needs at least one VCs to signal trust and confidence in its business model. VCs provide financial support as well as strategic guidance and industry connections. VCs make the startup more attractive to growth debt providers.

However, startups must demonstrate solid unit economics. They should showcase their operations are profitable. Lenders need to understand that the borrowed funds will be used effectively to drive sustainable growth. It should be proved that the business has a clear and sustainable path to profitability.

One another key indicator is the presence of valuable intellectual property as well as the ongoing technology development. It signals that the business has consistently pushed research and innovation. It also signals that a strong foundation is in place for continued growth. However, it is to be noted here that startups with significant intellectual property are often seen as lower-risk investments as they have unique assets that can drive long-term success.

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