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How an offer to sell our business inspired us to take on $17M in debt
- Blackstone4 8y agoGreat read. Question, since Wistia took capital from private equity (Accel-KKR). These guys typically invest in equity-like instruments. Is there PIK (payment-in-kind) on the debt or does it have equity like upside? PIK debt can have ~7-15% interest where maybe half or all of the interest accrues in the form of more debt which in turn has PIK. Accel-KKR might be looking at a nice ~12% return (IRR) with relatively low risk. Note: figures above are made up.
- brendan 8y agoThanks for reading! We can't disclose the exact terms of the debt, but it's fairly traditional. The interest rate is higher than if we had years of profitability to show -- makes sense as that's the risk the lender is taking. Also, the team that did this is separate from their PE side. Slightly more details are here in this WSJ article: https://www.wsj.com/articles/ditch-the-venture-model-say-founders-who-buy-out-early-investors-to-make-a-clear-break-1531827001 https://www.wsj.com/articles/ditch-the-venture-model-say-fou...
- hguhghuff 8y agoDoes it say how much was offered to buy the business?
- mox1 8y agoNo, but I'm going to guess right around the 17M, I guess it depends on how much the founders owned and whether they "cashed out" or just made their shares go poof.
- duxup 8y agoOne thing I wonder about starting your own business like this is if you do sell .... if there's a bit of a sense of loss. Things change forever, you were successful, but it's fundamentally a different game / company now.
- mooktakim 8y agoI'm wondering what happens to the cap table now. Lets say after many raises the investors own 50% of the company and 50% is founders and employees. If the company borrows money to buy out the investors, does that mean the 50% owned by founders/employees turn into 100%? I'm thinking the valuation would still remain the same, which means suddenly their value goes up significantly.
- OiNG 8y agothe valuation would have to drop to account for the debt the company took on.
- ta2121 8y agoWhat would the financial implications be if founders bought out investors like this, but then raised a larger round at a higher valuation? Does that happen? I never even considered taking on debt to buy out investors - but after seeing this it seems like a lot of high growth startup founders could position themselves well by doing so.