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Ask YC: Debt Financing for startups e.g.: Facebook, Blekko?
Why do startups use debt financing, why is it so popualar, other than the fact that startups don't need to part with equity?
and in the couple of cases I have seen it, it's mostly for hardware/ infrastructure related stuff? why is that?
-- Blekko: http://www.techcrunch.com/2008/05/14/stealth-search-engine-blekko-gets-money-from-marc-andreessen-softtech/
-- Facebook: http://www.businessweek.com/technology/content/may2008/tc2008059_855064.htm
- bigtoga 18y agoIf you want a real answer, read 2-4 books. If you want a pithy, poorly explained 2-4 sentence overview, then here's my attempt: debt financing is attractive to startups since they can often get favorable terms on the debt (one year payment and/or interest free). Investors often like convertible debt since it is less risky than a straight investment; i.e. debt is paid before any profits are paid. Investors also will generally have the option to convert the debt to equity later on at today's valuation. Why is it often done for hardware? Easy: collateral.