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Venture debt is a form of debt financing for emerging venture-backed companies.
This type of financing has emerged as a means of financing startups that are "in between" more traditional venture capital financing rounds.
Traditional venture capital investments occur in stages: staged equity financing allows for the venture capitalist to ensure that the startup has achieved important milestones before releasing additional investment to the company. Typically, the value of the company will increase dramatically upon successfully completing a milestone, because the completion of the milestone signals that the company is less risky than before the milestone was completed.
For example, a company developing a radical drug therapy would be less risky after receiving regulatory approval than before receiving regulatory approval. It would therefore be natural to use regulatory approval as a funding milestone.
More generally, many startups involved in drug development might have funding milestones that are tied to completing various stages of the clinical trial process.
Sometimes companies run short of capital in between funding milestones. Companies who run short of capital are sometimes good candidates for venture debt. As the company has not yet achieved the milestone that will increase its value, taking on new equity capital will dilute the earlier equity investors more than if the new equity investors put their money into the company after the company reached its milestone. 
In 2006, venture loans accounted for 7 per cent of all money invested in US venture capital-backed companies. High profile US companies that have taken on venture debt include MySpace, Cooking.com and Athena Health.