By Julia Figueiredo, Director of Business Development at Partners for Growth
Startups don’t scale on equity alone.
Equity may grab the headlines, but it isn’t always the most efficient way to fund growth. For scaling tech companies with proven traction, relying solely on equity can lead to unnecessary dilution and loss of control. A typical Series B or C round can dilute founders and early shareholders by 15–25%, even when the business is performing well. Growth debt offers a complementary alternative, providing flexible, non/minimally dilutive capital that supports expansion without giving up additional ownership.
Importantly, over 60% of late-stage venture-backed companies now use some form of structured credit or growth debt as part of their capital stack, reflecting a broader market shift toward capital efficiency. For companies with strong unit economics and predictable revenue, adding a credit facility can extend runway by 6–12 months on average and reduce dependence on large equity rounds, helping teams execute the next stage of growth without sacrificing strategic control.
At PFG, we’ve spent over 20 years backing founders who use debt strategically, not as a fallback, but as a lever for momentum. Here’s how growth debt works, when to use it, and why more companies are turning to it today.
Growth Debt: More Than Just a Cushion
There’s a common misconception that debt is only for companies in distress or as a bridge when equity dries up.
Growth debt can, and should, be used proactively. Whether to fund product launches, enter new markets, or pursue acquisitions, it allows founders to delay dilution until the business has hit its next valuation milestone.
Rather than replacing venture capital, growth debt complements it. When used correctly, it helps companies scale faster, with less dilution and more control.
Structuring for Scale
Unlike traditional bank loans, PFG’s growth debt solutions are built around the needs of high-growth companies. We offer a flexible toolkit tailored to each business model:
- Growth Term Loans – Flexible corporate loans secured by the business, not reliant on profitability or hard assets. Ideal for companies with recurring revenue and a clear plan to scale.
- Lines of Credit – Revolving credit facilities that provide working capital flexibility. Useful for smoothing cash cycles or funding short-term needs without raising equity.
- Acquisition Lines of Credit – Dedicated capital to pursue M&A opportunities. Structured to move quickly, these facilities support buy-and-build strategies without drawing on existing cash or equity.
- Convertible Notes – Debt that converts to equity under specific conditions, such as a future financing round or exit. Offers hybrid flexibility for companies in transition or early scaling phases.
- Revenue or Royalty Share – A percentage of future revenue used to repay debt. Terms flex with performance, making it attractive for companies with strong gross margins and volatile cash flows.
- Asset-Backed Facilities (ABF) – Custom warehouse lines and receivables-based credit for fintechs and platforms. These solutions finance underlying assets like loans, leases, or subscription receivables, and scale as the portfolio grows.
Each product is designed to right-size capital and risk for where the business is today, and where it’s going tomorrow.
When to Use Growth Debt
Growth debt works best when a company has:
- Repeatable revenue (typically $5–10M+ ARR)
- Healthy gross margins
- A clear use of proceeds
- A credible path to profitability
Common use cases we see across our portfolio:
- Entering new markets
- Funding M&A
- Building out sales and GTM functions
- Launching new products
- Extending runway to hit a stronger valuation before raising equity
And importantly, growth debt can unlock value at exit. Several of our portfolio companies have used it to finance acquisitions, expand distribution, and become more attractive targets ahead of strategic M&A.
What Founders Should Know
- Debt is not one-size-fits-all. From corporate term loans to receivables-backed credit lines, the right structure depends on your business model and capital plan.
- Choose your lender like a partner. Terms matter, but so does alignment. At PFG, we invest with conviction and partner for the long-term.
- Preserve optionality. Growth debt helps you delay valuation-setting events and retain more upside when your company is ready for its next equity round.
A Strategic Capital Mix
In an era of higher cost of capital and reduced VC appetite, founders are reassessing how they fund growth. Growth debt offers a compelling middle ground, capital to scale without sacrificing control.
At PFG, we’ve deployed over $2.1B across 250+ companies in 15+ countries, a 20-year track record through cycles. Whether you’re bootstrapped, sponsor-backed, or venture-funded, we structure to your stage, not someone else’s template.
If you’re at an inflection point and thinking about your next move, we’d love to talk.
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The views expressed are my own and do not necessarily reflect those of my employer.
This content is for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any securities. Any such offer will be made only to qualified investors through confidential offering documents. All investments involve risk, including the possible loss of principal. Past performance is not indicative of future results.
