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Selling equity in a startup is very different from taking on debt, with debt your committing the business to a strategy, if it doesn't work the business will pr
by lumost 8y ago
Selling equity in a startup is very different from taking on debt, with debt your committing the business to a strategy, if it doesn't work the business will probably fold.
While this makes sense for capex intensive businesses. It's an irrational choice for a tech startup that may need to pivot, partner or be acquired. For those choices you need a source of capital with similar incentives as the founders.
- xiaosun 8y agoIf the equity sold has preferred returns or liquidity preferences, then the impact of the compounding cost to common shareholders is not too dissimilar from the impact of debt.
- cat199 8y ago> Selling equity in a startup is very different from taking on debt, with debt your committing the business to a strategy wha? selling debt you are committing yourself to a financial obligation, selling equity you are committing yourself to a strategy in the hope that that strategy will be successful.. yes, it is not binding fiscally and so the strategy can be renegotiated without penalty, but that doesn't by proxy imply the converse that debt inherently requires a fixed strategy.. this is why you can get cash flow/line of credit loans based simply on historical accounting data, etc.. that said getting loans under false pretenses is also fraud. YMMV
- slg 8y agoFrom a business perspective equity is just debt with less defined terms. That gives the business more flexibility and might allow it to pivot, but the obligation to pay back funds in some way is the same.