Venture Debt - Facility Drawdown (Silicon Valley Bank / Hercules / Western Technology)
Recording a drawdown on a venture debt facility — a loan product designed for VC-backed startups providing non-dilutive growth capital, typically with warrant coverage and an end-of-term payment.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Cash & Cash Equivalents | Asset (+) | 5,000,000.00 | - |
| Venture Debt Payable (Long-Term Portion) | Liability (+) | - | 4,700,000.00 |
| Venture Debt - Current Portion (Due Within 12 Months) | Liability (+) | - | 300,000.00 |
| Debt Issuance Costs (Deducted from Debt Carrying Value) | Asset (-) / Contra Liability (+) | - | 75,000.00 |
| Cash (Origination / Facility Fee Paid) | Asset (-) | 75,000.00 | - |
💡 Accountant's Note
Venture debt (provided by Silicon Valley Bank before its 2023 collapse, Hercules Capital, Western Technology Investment, TriplePoint) is a term loan for VC-backed startups — typically 3–4x monthly recurring revenue or 20–30% of last equity raised. It has: (1) Interest-only period (first 12 months), (2) Principal + interest amortization (months 13–36), (3) End-of-term payment (ETP) — additional balloon of 2%–5% of original principal, (4) Warrant coverage (typically 1%–2% of facility amount in warrants to purchase preferred or common stock). Debt issuance costs are netted against the debt carrying value (not capitalized as a separate asset per current GAAP).
Practitioner & Systems Framework
💻 ERP Architecture
Venture debt is REAL DEBT — it appears in liabilities with current and non-current classification based on the repayment schedule. The warrant coverage creates a debt discount (the fair value of warrants issued to the lender at inception reduces the initial debt carrying value, increasing the effective interest rate). The end-of-term payment is an additional obligation that must be accrued over the debt term using the effective interest method. Post-SVB collapse in 2023, the venture debt market shifted significantly — many startups scrambled to find replacement facilities.
⚠️ Audit Flags
Auditors test: (1) Proper bifurcation of warrant value from the loan proceeds (warrant debt discount), (2) Effective interest rate calculation incorporating: stated interest + issuance costs + end-of-term payment + warrant discount, (3) Debt covenant compliance — venture debt typically includes financial covenants (minimum cash runway, minimum MRR growth) that if violated accelerate the debt to current. Covenant violations require disclosure.
📄 Required Documentation
Venture debt loan and security agreement, amortization schedule, warrant purchase agreement (for warrant coverage), warrant fair value at grant date (requires Black-Scholes or similar), debt issuance cost schedule, end-of-term payment provision, covenant compliance calculation.
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