Private Credit vs Venture Debt vs VC: Picking the Right Tool

“Should we raise VC?” is usually the wrong first question.

The better question is: what problem are you solving right now, runway, growth acceleration, acquisitions, working capital, or founder liquidity, and what trade-offs are you willing to accept (dilution, repayment obligation, covenants, governance, speed, certainty)?

This guide breaks down the three most common “growth capital tools” founders consider: Private Credit, Venture Debt, and Venture Capital (VC).

The plain-English definitions

Venture Capital (VC)

VC is high-risk private funding provided to young/high-growth companies in exchange for equity (ownership). 

Venture Debt

Venture debt is a loan designed for venture-backed, high-growth companies, typically used alongside equity to extend runway or hit milestones, and it must be repaid. 

Private Credit

Private credit generally refers to privately negotiated loans made by non-bank lenders (often funds) outside public markets. 

The real difference: what you’re “paying” with

VC: You pay with ownership + control rights

• You don’t have a contractual repayment schedule like a loan, but you give up equity and typically accept investor governance expectations (board, major consents, reporting). (Equity exchange is core to VC.) 

Venture Debt: You pay with repayment + lender protections

• It’s debt: you must repay, and it’s commonly used by venture-backed companies to complement equity. 

• Like most lending, terms can include covenants (promises/limits designed to protect the lender). 

Private Credit: You pay with repayment + negotiated terms (often more bespoke)

• Private credit is typically negotiated directly with a small group of lenders/funds rather than issued in public markets. 

• It’s still credit, so lender protections and covenants can be part of the package. 

When each tool is usually the best fit

VC is usually a fit when…

Choose VC when the business needs risk capital to pursue a big outcome where repayment pressure would be dangerous.

• You’re building for outsized scale and need capital to move fast

• Cash flows are not yet stable enough to comfortably service debt

• The value of speed and network outweighs dilution

(VC’s core purpose is funding high-growth, high-risk companies in exchange for equity.) 

Venture debt is usually a fit when…

Venture debt can be a fit when you are venture-backed and want to extend runway / reach milestones with less dilution than another equity round, while accepting repayment obligations.

• You have VC backing and a clear plan for the funds

• You want “runway insurance” between equity rounds

• You can manage repayment and lender terms

(Venture debt is designed specifically for venture-backed, fast-growing startups and is repaid over time.) 

Private credit is usually a fit when…

Private credit can be a fit when you want non-bank debt with terms negotiated privately, often used by businesses that prefer not to borrow in public markets.

• You want debt financing and can support repayment

• You prefer privately negotiated terms and speed/flexibility vs public issuance

• You want to avoid (or minimise) equity dilution

(Private credit: privately negotiated loans with non-bank lenders outside public markets.) 

The founder decision checklist (fast and practical)

Answer these honestly:

1. Can the business safely commit to repayment?

   If repayment would create existential risk during a bad quarter, debt may be the wrong tool.

   
   

2. Is dilution acceptable — and worth it?

   If the capital materially increases enterprise value (not just extends runway), dilution can be rational.

   
   

3. What is the money for?

• “Fuel growth” (and accept dilution) → often VC

• “Extend runway to milestone” (less dilution, but repayment) → often venture debt 

• “Finance growth with negotiated debt” → often private credit 

4. What constraints can you live with?

   Debt can come with covenants and restrictions; equity comes with governance and long-term alignment expectations. (Covenants are common in finance lending terms.) 

   
   

5. What’s your Plan B if things don’t go perfectly?

   Your financing should survive normal volatility—because volatility is normal.

Common mistakes we see founders make

• Using VC as a default when the real need is structured growth financing or runway extension.

• Taking debt too early when revenue durability isn’t there yet to support repayment.

• Optimising for headline valuation instead of optimising for survival, control, and option value.

• Ignoring terms (covenants, controls, downside protections) until it’s too late. 

A simple rule of thumb

• If you need risk capital to build something big → VC. 

• If you’re venture-backed and want runway with less dilution → venture debt. 

• If you can service debt and want privately negotiated lending → private credit. 

None of these is “better.” The best tool is the one that matches your business reality and protects your options.

Want a founder-friendly recommendation?

At Founders Links, we help founders map the best-fit path (VC vs Venture Debt vs Private Credit) based on cashflow durability, growth plan, risk tolerance, and the terms that matter, so you don’t win the funding and lose the flexibility.