The chapter begins with a discussion of the life cycle theory of capital structure. Start-up firms usually do not have much profit, so the tax advantage of debt is not as important as it is for a mature firm. Start-up firms do not usually require strong incentives for managers since there is no large separation between ownership and management like in big public corporations. The chapter then discusses the capital structure of venture firms. It is argued that using convertible securities can be optimal. It protects investors in early stages of company development and provides optimal incentives in later stages. The chapter then discusses the problems of debt financing in small firms and explains why firms can use outside debt to signal their quality.