Beyond Equity: When Venture Debt and Secondary Markets Enter the Conversation
- Stephanie Roulic
- 1 day ago
- 5 min read
Startup funding conversations tend to follow a familiar script: raise a seed round, close Series A and scale toward Series B.
Equity dominates the narrative.
But as companies mature and markets evolve founders face a more complex question: what comes next?
At Startup Boston Week, Janice Bourque (Hercules Capital), Matthew Ahern (Knightsbridge Advisers), Will Kidston (Kenston Capital Partners), Yeng Felipe Butler (Chestnut Run Capital Partners) and Will Bernat (Nutter) unpacked two tools that sit beyond traditional venture capital: venture debt and secondary markets. While often misunderstood, these options can extend runway, support growth, and provide liquidity - without reshaping a company’s ownership structure.
Their message was clear: capital strategy doesn’t end with equity. It evolves with the company.
The full event video is embedded below if you’d like to watch the conversation start-to-finish, or keep reading for an overview.
Venture Debt: Not Equity, Not a Bank Loan — Something In Between
Venture debt is often confused with traditional lending. It isn’t.
“Think about the two words,” explained Janice Bourque of Hercules Capital. “It’s debt, you have to pay it back. And it’s venture, it takes a higher risk than traditional bank debt.”
Unlike bank loans, venture debt providers may finance companies with little or no revenue, including clinical-stage biotech firms or deep tech startups still in development.
But unlike equity, founders don’t give up ownership. “It’s non-dilutive,” Bourque said, “but it comes with a defined repayment schedule.”
She likened the structure to a mortgage: an initial interest-only period followed by principal repayment over time. Used correctly, venture debt isn’t a replacement for equity, it’s a complement. “You use it for growth,” she noted. “Not to replace equity.”
Timing Matters More Than Access
Debt can accelerate growth or derail it. “The right company, right time,” said Kenston Capital’s Will Kidston. “Too early can be detrimental. Too late and it won’t have the intended impact.”
In many cases, lenders want to see:
a product in market
repeatable sales cycles
early commercial traction
a path to profitability
Recent market conditions have shifted priorities.
“We’re seeing more companies pivot toward profitability sooner to control their own destiny,” Kidston said. In other words: debt works best when it strengthens momentum, not when it substitutes for it.
The First Question: How Will You Pay It Back?
Before taking on debt, founders must answer a simple but critical question, “where is the repayment going to come from?” Bourque asked. “If you can’t answer that, you shouldn’t be taking out debt.”
Repayment sources may include:
future equity raises
licensing or partnership payments
grants or non-dilutive funding
operating revenue
Without a clear plan, debt becomes risk, not leverage.
A Broader Capital Continuum
Venture debt is only one option within a wider financing ecosystem.
Yang-Philippe Butler of Chestnut Run Capital emphasized thinking holistically about capital strategy, “there are providers across the continuum,” he said. “That’s the best way to look at capitalization.”
Asset-based lending, equipment financing, and bridge loans can help companies scale operations once physical assets or predictable revenue streams exist. The key is aligning financing tools with operational realities.
Why Venture Debt Is Gaining Attention
Market shifts have increased demand for non-dilutive capital. Kidston pointed to several trends:
equity markets tightening in certain sectors
regional banking retrenchment after the banking crisis
reduced early-stage lending availability
“Early-stage, there’s less availability,” he said. “Later stage, there’s more competition.”
At the same time, specialization among lenders is increasing, “I’m seeing more providers focusing on specific sectors,” Butler noted. “They get comfortable underwriting those deals.”
For founders, that means choosing capital partners who understand their industry.
What Debt Providers Look For
Beyond metrics, lenders evaluate people and structure. Management experience matters. So does investor strength and long-term capital availability.
“We look at who the investors are,” Bourque said. “And whether they can continue supporting the company.”
Debt is often used to extend runway to key milestones - data readouts, regulatory approvals, or revenue inflection points. “Our job is to help you get to a value-creation point,” she said.
Covenants: The Fine Print That Shapes the Relationship
Debt agreements include covenants - requirements and restrictions designed to protect both lender and company.
These may include:
maintaining minimum cash balances
keeping funds in controlled accounts
insurance requirements
restrictions on major investments or joint ventures
IP location and control provisions
“There’s nothing hidden,” Bourque said. “But you need to read and understand it.” Covenants aren’t designed to control founders, they create guardrails.
When Things Go Sideways: Communication Is Everything
Startups rarely grow in straight lines. When challenges arise, lenders emphasize communication. “Talk to us,” Kidston said. “We want to help resolve the issue and chart a path forward.”
Bourque warned that silence erodes trust, “the minute you shut down, it’s really bad,” she said. “We don’t just want the good news.”
Debt relationships, panelists emphasized, are partnerships, not transactions.
Secondary Markets: Liquidity Without Selling the Company
As startups grow and valuations rise, another conversation emerges: liquidity.
Secondary transactions allow founders, employees, or early investors to sell shares to new buyers, without the company raising new capital. “It’s literally liquidity for people on the cap table,” explained Matt Ahern of Knightsbridge Advisors.
While once considered taboo, founder liquidity is increasingly common. “You hear stories of founders with paper wealth still living in tiny apartments,” Ahern said. “Secondaries let people realize some value.”
Secondary transactions typically emerge once companies have raised multiple rounds and built meaningful valuation. And the capital doesn’t go into the business, it goes to the seller.
Founder Liquidity vs. Founder Motivation
Allowing founders to sell shares can raise concerns about long-term motivation.
Ahern sees it differently, “the entrepreneurs you want to back are top performers,” he said. “Taking some money off the table isn’t the goal, finishing the race is.”
Secondary investors often rely on deep relationships and long-term insight into companies before participating.
A Financial Strategy, Not Just a Fundraise
One of the strongest themes from the panel: founders need a financial strategy, not just a funding plan. “You need to think about when you’ll access capital and how much,” Bourque said. “Have a path forward.”
Kidston added a practical rule: “The worst time to raise money is when you’re about to run out.” Or, as lenders often say: Raise money when you have money.
Building a Thoughtful Capital Stack
For founders navigating growth, the panel offered parting guidance:
Educate yourself early. Understand debt, equity, grants, and alternative financing.
Choose partners carefully. Reputation and experience matter.
Talk to other founders. Learn how lenders behave when things go wrong.
Think holistically. Capital strategy evolves with the business.
Communicate openly. Trust is built before challenges arise.
Beyond Equity, Toward Strategic Capital
Equity will always play a central role in startup growth, but as companies mature, the financing toolkit expands.
Debt can extend the runway and preserve ownership, secondary markets can provide liquidity without changing control, and alternative financing can support scaling without dilution.
The key isn’t choosing one path, it’s understanding when each tool strengthens the journey. Because building a company isn’t just about raising capital, it’s about structuring it wisely.
The full event video is embedded above (or you can watch it directly on YouTube) to catch the complete Q&A and founder stories shared from the stage.
