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Interesting article. I'm interested in the financial schemes (of the venture lenders) in the upcoming series of articles or any anecdotes from HN members. This

• brudgers 10y ago
  The financial model is pretty much straight out of real estate development and private equity. The best up side for the lender is often being able to call the loan and take control of the asset. My anecdotal observations imply that this is pretty common outside Silicon Valley because it's the model the local yokel investors know through experience. The popularization of "startup" as a synonymous with "new business" and the common idea among founders that raising money and pitching investors and getting mentored is the first priority make happy hunting grounds for this type of investor. That's not to say there aren't vultures on Sand Hill Road, but the standard model there tends to have greater alignment of interests between founders and investors.
  • karmakarma1 10y ago
    I saw this a lot first hand doing commercial small business real estate. Hard money lenders give someone a loan to start a restaurant, and if it fails to meet the obligations of the loan, they can foreclose on the restaurant and other property or assets the person has signed as collateral. Taking money as a loan with a personal guarantee is always a very high risk situation and should be avoided unless you absolutely have to.