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VC is equity not debt, and very very few restaurants raise money via equity. Often they'll take out large loans secured on both house and business, along with
by Ntrails 8y ago
VC is equity not debt, and very very few restaurants raise money via equity.
Often they'll take out large loans secured on both house and business, along with a chunk of their own (or investor/friends) money to get things started. The lenders get to stick nice chunky rates on the whole thing and generally have limited downside because collateral.
I don't mean to imply the banks are doing anything wrong, just that the business model is based on managed downside rather than "striking it rich"
- wgerard 8y agoMinor nitpick which I can't let go because it's been on my brain lately: VC is not always equity, especially in the early stages of a company. Convertible notes are debt instruments (and SAFEs are warrants). They convert to equity eventually, so you are of course correct in the long run (and why it's a nitpick). But until that happens your investors are debt holders.
- aml183 8y agoCorrect, but I would say it's next to impossible to find a VC who treats a SAFE/Convertible Note as debt. Nobody wants it paid off, the VC will always choose to convert to equity because that is the VC's model.
- Ntrails 8y agoIt's a nitpick - but both valid and interesting (I've never worked in startups and did not know that VCs commonly bought convertible notes)