Why Family Offices Are Doubling Down on Venture Debt

A survey of 41 single-family offices in India shows venture debt allocations have grown from a median 1.5% in FY24 to 4.8% in FY26. The driver isn't yield — it's the warrant kicker and the shorter duration relative to direct venture equity.

As capital chases deals, covenant packages have weakened. The MAC clauses we saw in 2023 vintage paper are largely absent in 2026 deals. That's the single biggest red flag for new commitments.

Venture debt is a loan to a venture-capital-backed company, usually drawn shortly after an equity round when the balance sheet is strongest. It carries a coupon (typically in the mid-teens) plus a small equity warrant — the 'kicker' — that gives the lender upside if the company does well. Tenures are short, often two to three years, and repayment is structured around the borrower's cash runway to the next round.

For a family office, venture debt offers much of venture's exposure with a very different risk shape. It sits senior to equity, so it gets paid back first; it generates current income rather than waiting years for an exit; and the warrant preserves a slice of the upside. The shorter duration also means capital recycles faster than in a ten-year venture equity fund.

The protection is only as good as the borrower's runway. Venture debt depends on the company raising its next equity round on time — if that round slips or prices down, the loan's 'equity cushion' thins fast. Recovery on a defaulted startup loan is often low because the assets are intangible. Weak covenants, as noted above, remove the early-warning levers a lender needs. Underwrite the portfolio company's path to its next round, not just the headline coupon.