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There are definitely investors that like venture debt risk/reward like the following firms:

http://www.goldhillcapital.com/ http://www.westerntech.com/ http://www.orix.com/

There are also some commercial banks with venture debt arms like SVB, Comerica, and Square 1

Both answers are correct, and make sense. I guess my question is fundamentally: is this a problem of supply (i.e. - not a lot of appetite to fund debt at these levels) or one of demand (entrepreneurs just prefer equity).

supply. Banks theoretically would provide debt to a company with 1mm in revenue, as long as they show the ability to cover the debt payments. But those companies typically can raise more money based on equity than debt.

So the concern is that a debt financing would be smaller than a potential equity financing by some order of magnitude, as it's constrained by trailing cash flow rather than future opportunities?

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