Growth & venture debt term sheets explained

A venture debt or growth credit term sheet may run to only a few pages, but its terms can shape the company’s cash flow and decisions for years. The headline facility size, interest rate and maturity are only the starting point. Availability, repayment, covenants, security, defaults and equity participation determine what the company actually receives and gives up.

Read the offer with the operating plan beside it. The practical question is whether the company can draw the funding when needed, afford the repayments and continue executing its plans if performance falls short. This guide shows how to turn the terms into that assessment.

All dollar amounts in this guide are US dollars. The fictional examples illustrate calculations that also apply in other currencies; the agreement and jurisdiction determine the actual terms.

What a growth debt term sheet does

Read the document’s status clause before relying on it. Identify which obligations, if any, bind the parties now, including confidentiality, exclusivity and payment of costs. An indicative proposal and a commitment letter should not be assumed to have the same legal effect just because both summarise a financing. The wording and governing law matter.

Even where the financing terms are non-binding, unresolved issues can cause extra negotiation, cost and delay later. Cooley’s venture-debt term-sheet guide recommends involving counsel at this stage, before negotiating the longer loan documents.

Read the whole offer, not the headline

Organise the first pass around available funding, total cost, operating restrictions, downside rights and execution. Record the actual wording and unresolved questions, rather than ticking a box because a topic appears.

Facility size and availability

Start with the instrument. A term loan provides borrowing for an agreed term; a revolving facility permits borrowing, repayment and redrawing within its terms. A delayed-draw term facility provides a window for later advances, but that does not by itself allow repaid amounts to be borrowed again.

Then split the headline into money already advanced, undrawn amounts available subject to specified conditions, and amounts requiring a further discretionary decision. Cooley’s checklist asks about tranche triggers, realistic milestones and the time allowed to draw.

For each drawdown or tranche, record the deadline, evidence required and any continuing conditions. A measurable revenue target differs from fresh credit approval. Even a measurable milestone may sit alongside a no-default condition or other restrictions.

Two fictional $5m offers

Assume both offers have completed documentation and satisfied their initial conditions. The amounts below are before fees, expenses and any restrictions on cash use.

If the forecast needs $4m of borrowing and Offer B’s second tranche is unavailable, the funding gap is $4m − $2.5m = $1.5m before costs. Model that gap directly. Do not book the whole $5m as cash simply because it appears on the term sheet.

A disclosed example: Dyne’s expanded facility

In its 17 June 2026 announcement, Dyne described an expanded Hercules facility of up to $400m. It reported $200m of aggregate borrowings, including $50m funded when the amendment was executed. Potential future funding included a newly added $50m milestone-dependent tranche and a final tranche of up to $75m at Hercules’ discretion.

The filed amendment, Exhibit A, Section 2.2(a)(v), makes investment-committee approval a condition of Tranche 5. The $400m headline therefore did not describe $400m already drawn or an unconditional right to all remaining funding.

This is a historical US transaction, not a template for every growth-debt offer. Undiluted’s Dyne financing coverage provides the wider deal context.

Price is more than the interest rate

Identify the reference rate, margin, any floor, interest periods and whether interest is paid in cash, capitalised or split between the two. Check exactly where a floor applies: to the reference rate, the total interest rate or another defined calculation.

Then list the other charges and their calculation bases. An arrangement fee on the commitment, interest on drawn principal and a prepayment fee on the amount repaid are different cash flows. Osborne Clarke’s European venture-debt overview describes pricing as a combination of interest, fees and potential equity participation. Its 2023 discussion is useful structural context, not a current rate benchmark.

A fictional closing-cash calculation

Assume a $5m commitment with a $2.5m first draw, an arrangement fee of 1% of the full commitment and $30,000 of transaction expenses. Both charges are paid from the draw at closing, with no other deductions or principal adjustment.

The initial principal remains $2.5m under these assumptions, although the company receives $2.42m after costs. If the same fee were instead 1% of the first draw, it would be $25,000: a $25,000 difference from changing one definition.

This isolates closing cash, not the facility’s annualised or lifetime cost. Add interest, later draw fees, commitment charges, final payments and early repayment costs to the dated model. Assess warrants separately using explicit ownership and exit assumptions. The interest rates and costs guide explains how these components fit together.

Repayment, maturity and prepayment

Map when principal starts to amortise, repayment frequency, maturity and any final bullet payment. CMS’s debt-funding guide distinguishes instalment repayment from a bullet due at the end of the term.

An interest-only period preserves cash initially but can create a sharp increase in debt service later. For example, $2.4m repaid in 24 equal monthly principal instalments adds $100,000 of principal repayment per month, before interest and fees. That is an illustration, not an assumed market structure. Put the first amortisation date into the cash forecast; our repayment guide covers the alternatives.

Do not assume early repayment is available at par. Check voluntary prepayment notice, premiums, minimum-return or make-whole provisions, and any final payment still due. For mandatory prepayment, identify the events caught, thresholds, exceptions, reinvestment rights and the treatment of partially repaid amounts. An asset sale and a change of control may have different consequences.

Covenants and operating freedom

Covenants govern what the borrower must do or avoid while the facility is outstanding. Affirmative obligations include delivering accounts, budgets and notices. Negative covenants may restrict additional debt, security, acquisitions, disposals, dividends, cash movements or related-party transactions, subject to agreed exceptions.

Financial tests may address liquidity, revenue, cash burn, earnings, leverage or debt-service capacity. CMS’s discussion of financial covenants provides examples. Read the metric together with its definitions, testing dates, thresholds and cure provisions.

Consider a fictional $2m minimum-liquidity requirement. A forecast balance of $2.3m appears to give $300,000 of headroom. If $400,000 of that balance is excluded by the agreed definition, qualifying liquidity is $1.9m and the shortfall is $100,000. A bank balance alone does not establish compliance.

For non-financial covenants, test the board-approved plan against the permitted amounts and exceptions, sometimes called baskets. A planned acquisition, new overseas subsidiary or equipment lease may need capacity under more than one clause. Assign someone to track the reporting deadlines as well as the financial tests.

Security, guarantees and priority

Identify the borrowers, guarantors, assets, jurisdictions and exclusions. Cash, receivables, shares, equipment and intellectual property may be treated differently. Ask which entities hold revenue, cash and key assets, and how they sit within the proposed security package.

Cooley’s term-sheet checklist distinguishes taking security over intellectual property from a negative pledge restricting security granted to another creditor. Do not read an IP exclusion as unrestricted freedom to pledge it elsewhere.

Check existing debt, leases, receivables facilities and shareholder or intercompany loans. Existing creditors may need to consent, release security or agree ranking arrangements. Identify who is responsible for local-law work, when security must be completed and what releases are needed on repayment. The security and collateral guide explains the wider package.

Events of default and lender remedies

Read events of default individually. Payment failure, a missed report, insolvency and a subjective deterioration test raise different questions. Establish thresholds, knowledge qualifiers, grace periods, cure rights and the consequences: drawings may stop, default interest may apply, or the lender may obtain acceleration and enforcement rights.

In a 2018 interview published by Orrick, partner Dolph Hellman explained the importance of subjective default triggers:

Apply that scrutiny to material-adverse-change and investor-support provisions, where present. The quotation concerns negotiating language; it is not a prediction of how a particular lender will act after a breach.

Also distinguish cross-default from cross-acceleration. Slaughter and May’s borrower’s guide, commentary on Clause 23.5, explains the difference between another creditor being entitled to accelerate and actually accelerating. Ask which circumstances your wording catches, which group entities are included and what thresholds apply. That guide addresses investment-grade LMA documentation; it is a reference for the distinction, not evidence that venture lenders offer identical terms.

Resolve vague wording before signing

Orrick’s interview also flags the phrase “usual and customary” in covenants, defaults and mandatory prepayments. Ask for the proposed form or a detailed issues list. A heading alone does not tell you whether an omitted definition will change liquidity, cost or control.

Record the proposed trigger, any exception, the available cure and what happens while the issue is unresolved. Do not assume every breach has a cure period or that a waiver will be granted.

Warrants and other equity participation

Establish whether the offer includes warrants, co-investment rights, value-linked exit fees or another return enhancement. For a warrant, record the calculation basis, share class, exercise price, duration, adjustments and exit treatment.

A percentage of debt and a percentage ownership stake are not interchangeable. Nor does repaying the loan necessarily terminate a separately issued warrant. The updated warrants guide includes coverage, dilution and cashless-exercise calculations. Bring those outcomes into the offer comparison rather than treating equity participation as an incidental fee.

Conditions, diligence and the path to closing

A signed term sheet is not funded cash. Separate what is needed to sign the facility, make the first draw and access each later tranche. Potential conditions include diligence, credit approval, identity checks, corporate approvals, signed documents, insurance, existing-lender consents, security steps and an equity financing.

For each condition, identify who provides the evidence, who accepts it, its deadline and whether it remains discretionary. A practical closing checklist might say: “Existing lender’s release, borrower counsel responsible, agreed form required before the first draw.” That is more useful than simply recording “refinancing conditions”.

Slaughter and May’s commentary on Schedule 2, Conditions Precedent, illustrates why the required documents should be specified and adapted to the entities and jurisdictions involved. Your own transaction needs its own checklist.

Read the process terms with the same care: confidentiality, exclusivity, expiry, expense deposits and cost reimbursement. Establish what is payable if the transaction stops, whether costs are capped and whether exclusivity ends automatically. Model the funding date with enough room for outstanding third-party approvals.

Compare offers in the downside case

Use the same operating forecast, draw dates and repayment assumptions for each offer. Then change the assumptions and rerun both the cash model and the contractual tests.

The percentage miss and delay above are stress-test assumptions, not predictions. If one event both blocks a draw and reduces covenant headroom, model both effects in the same scenario.

Ask the same questions of every lender

1. 1Exactly how much is drawable at closing, and what can prevent each later drawing?
2. 2What net cash arrives after fees, and what is the total cash cost across the proposed schedule?
3. 3Which covenant or availability test is closest to binding if the company misses plan?
4. 4Which planned decisions need consent or capacity under an exception?
5. 5What happens after a reporting delay, covenant miss, delayed fundraise or change of control?
6. 6How do warrants or other equity returns change across valuation and exit outcomes?
7. 7Which terms remain subject to credit approval, diligence or definitive documentation?
8. 8Which obligations bind the company now, and what happens if the transaction does not close?
9. 9How has the lender dealt with comparable borrowers when performance diverged from plan?

For a consistent comparison, use our term-sheet comparison guide.

From term sheet to definitive documents

The final package may include a facility agreement, fee letter, security documents, guarantees, ranking agreements, warrant instruments and corporate approvals. Check the package as a whole: the economic terms may not all sit in the loan agreement.

Keep an issues list with the agreed position, the document and clause that implement it, the person responsible and the resolution. For example, if the model assumes a fee is charged only on drawings, check that the fee letter uses that basis rather than the total commitment.

Reconcile calculations, definitions and exceptions with the cash model and operating plan. Some detail belongs in the long-form documents, but any unresolved principle that could change cost, usable liquidity, operating freedom or downside rights belongs on the negotiation list before signing.

Where to go next

• How to compare venture debt term sheets provides a consistent framework for evaluating offers.
• Venture debt interest rates and costs builds a complete view of cash cost, fees and equity-linked value.
• Covenants in growth lending explains the promises and tests that govern the facility.
• Security and collateral in growth lending explains what lenders take security over and why it matters.
• Warrants and equity kickers in growth lending shows how to translate equity participation into shares, dilution and scenario outcomes.