A Series A CFO's Venture Debt Diligence Checklist

Ask how long the fund providing the facility has been investing, and how much dry powder remains in its current vehicle, since a lender near the end of its fund's investment period may be less flexible on a future amendment or follow-on draw than one with fresh capital to deploy. Ask directly whether this fund has ever needed to restructure or call a loan early with a portfolio company, and if so, how that process actually went, not just how the relationship started.

Keep a short scorecard for each lender you are considering, with one row per question from this section: fund age and remaining capital, past restructurings, reference feedback, and how the final documents compared with the term sheet. Score each row after the calls rather than from memory. For example, a lender with attractive pricing but vague answers about past workouts and no references beyond the fund's best companies should rank below a slightly pricier lender that answers directly and points you to a company that had a rough stretch. Putting both on the same scorecard makes the tradeoff visible to your board and your counsel.

A reference call with another portfolio company CFO is only useful if you ask specific questions: how did the lender behave the one time a covenant got tight, how quickly did they respond to a request for an amendment, and did the term sheet's stated terms match what actually showed up in the final credit agreement. A generic "they've been great to work with" answer tells you nothing; push for the specific moment things got uncomfortable and how the lender handled it.

Ask your own investors for introductions to more than one reference, ideally including at least one company that's had a rougher stretch, not just the fund's best performing portfolio companies. Lenders will naturally point you toward references likely to speak well of them, so finding your own additional reference through a founder network outside the lender's suggested list often surfaces a more complete picture.

Confirm the exact interest rate structure, fixed or floating and against which benchmark, the warrant coverage percentage and strike basis, any prepayment penalty and how it steps down, and whether a success or exit fee applies on top of everything else. Add these up into one all-in cost figure rather than evaluating each term in isolation, since a lower headline rate paired with heavier warrant coverage and a success fee can cost more overall than a higher rate with lighter terms elsewhere.

Add these terms into one all-in cost figure:

• The interest rate structure, meaning fixed or floating and against which benchmark.
• The warrant coverage percentage and the strike price basis the lender is asking for.
• Any prepayment penalty and how it steps down as the loan ages.
• Any success or exit fee charged on top of the rate, warrants and other terms.

List every financial covenant, minimum cash, a debt-to-revenue or DSCR test, and any operational covenants like restrictions on additional debt or a change of business. For each one, model your own numbers against the covenant threshold under both your current plan and a reasonable downside case, not just your best case projection. Lenders watch burn multiple closely when assessing whether a covenant package is set appropriately for a company's stage¹, and you should be running that same math yourself before you agree to the threshold, not after you're the one reporting against it.

Signing an exclusivity period with one lender before fully underwriting a competing term sheet is the single most common Series A mistake, since it removes your ability to negotiate against a second offer for the length of the exclusivity window. Get at least one competing term sheet, even an informal one, before agreeing to exclusivity with your preferred lender, and use the competing terms explicitly in the negotiation rather than assuming your preferred lender will match them without being asked.

A close second mistake is treating the diligence process as something the lender does to you rather than something you're running in parallel on the lender. Ask for the same level of transparency you're being asked to provide: recent portfolio company outcomes, how often the fund has needed to exercise a remedy, and what a typical amendment negotiation actually looks like with them. A lender confident in its own track record will usually answer these directly.