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No no no. Debt is not universally better. Debt can wipe out companies. It requires payments that equity does not. Miss one payment and you're in default. It's e

by vm 9y ago

No no no. Debt is not universally better. Debt can wipe out companies. It requires payments that equity does not. Miss one payment and you're in default. It's extremely risky for companies that are young and volatile. Debt vs. equity is always a case-by-case situation. Debt is cheaper but comes with strings attached. Equity is pricey but more flexible.

simonbyrne 9y ago
But it isn't in your creditor's interest that you go bankrupt either.
- emsy 9y ago
  This. Being able to get debt should, in general, be a good indicator that your company might actually be valuable.
  - saas_co_de 9y ago
    Not really. The easiest way to get a loan is to start a fast food franchise or build houses. Banks don't do innovation.
- valuearb 9y ago
  It is if they lose faith in your ability to make a profit. Better to force you into bankruptcy and auction the IP and tangible assets than let you ride it down to zero.
- vm 9y ago
  Bankruptcy can definitely be in the creditor's interest. It can take possession of the company's assets, and then sell them off to recover principal (in addition to many other outcomes - bankruptcy is complicated). Debt incentives do not align with equity.
  - thecrazyone 9y ago
    I don't equity investments align in interest either - among Founders, angels, VCs, PEs and public shares. There's enough material to backup the struggle between any of these entities
bdod6 9y ago
I don't think debt would be worse for startups though. It's unlikely debt would wipe out a startup unless it continually finances through debt over a long period of time or just has really unfavorable debt terms (which wouldn't make sense for the debt issuer either). The problem is getting debt financing...but I would imagine debt financing would make sense for 99.99% of startups.
pc86 9y ago
> Miss one payment and you're in default. I mean this is just factually wrong. Sure you'll rack up fees, it gets expensive quick, and there's generally no good reason to do it, but you're not in default until you're in default - and missing 1 payment is not going to do that.

by vm 9y ago

simonbyrne 9y ago

But it isn't in your creditor's interest that you go bankrupt either.

emsy 9y ago
This. Being able to get debt should, in general, be a good indicator that your company might actually be valuable.
- saas_co_de 9y ago
  Not really. The easiest way to get a loan is to start a fast food franchise or build houses. Banks don't do innovation.
valuearb 9y ago
It is if they lose faith in your ability to make a profit. Better to force you into bankruptcy and auction the IP and tangible assets than let you ride it down to zero.
vm 9y ago
Bankruptcy can definitely be in the creditor's interest. It can take possession of the company's assets, and then sell them off to recover principal (in addition to many other outcomes - bankruptcy is complicated). Debt incentives do not align with equity.
- thecrazyone 9y ago
  I don't equity investments align in interest either - among Founders, angels, VCs, PEs and public shares. There's enough material to backup the struggle between any of these entities

bdod6 9y ago

I don't think debt would be worse for startups though. It's unlikely debt would wipe out a startup unless it continually finances through debt over a long period of time or just has really unfavorable debt terms (which wouldn't make sense for the debt issuer either). The problem is getting debt financing...but I would imagine debt financing would make sense for 99.99% of startups.

pc86 9y ago

> Miss one payment and you're in default. I mean this is just factually wrong. Sure you'll rack up fees, it gets expensive quick, and there's generally no good reason to do it, but you're not in default until you're in default - and missing 1 payment is not going to do that.