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In the Startup Junkies series on iTunes, EarthClassMail borrowed the money to buy servers from a special bank made up of former venture capitalists who speciali
by vlad 18y ago
In the Startup Junkies series on iTunes, EarthClassMail borrowed the money to buy servers from a special bank made up of former venture capitalists who specialize in loaning money strictly for the purchase of physical hardware, also used as collateral. If Facebook already has almost half a billion dollars in investments, and feels this expansion will make them money, then they could pay off the loan without having to lower their valuation.
- slapshot 18y agoI don't know if Silicon Valley Bank is made up of former VCs, but they will lend to startups. If you have real assets to back the loan (here, the physical servers they are buying), debt is a far better way to get money than equity. Sure, Facebook _could_ issue stock, but investors would expect a 20%+ return. Instead, Facebook issues some IOUs to a bank that expects a 10% return. The current investors don't get diluted and everyone goes home happy. Buying physical assets with equity usually unnecessarily dilutive. Save your stockholders; issue debt instead.