5 ms·

The $6M probably only comes after delivering the product. $3M might be the what they need to get strong manufacturing going. And it looks like they money comes

The $6M probably only comes after delivering the product. $3M might be the what they need to get strong manufacturing going. And it looks like they money comes with a COO and some strong connections. It may be a smart move by the founder to get what they need while giving up as little equity as possible

gkoberger 6y ago
So why not do debt financing? I do agree that it seems to be for the connections, and for all we know they gave up 5% for that $3M.
- echelon 6y ago
  > So why not do debt financing? If you do debt financing, does that look unattractive to future VC rounds? Have any successful startups done primarily debt financing?
  - pbadg3r 6y ago
    Debt tends to be hard for super new companies, even with orders in hand. If you are developing a new product and don't have cash up front, there's a good chance you never deliver, and both lenders and potential customers know that. Also looks unattractive in future VC rounds, but in this case probably secondary to my first point.
    - webmaven 6y ago
      > Debt tends to be hard for super new companies, even with orders in hand. If you are developing a new product and don't have cash up front, there's a good chance you never deliver, and both lenders and potential customers know that. Also looks unattractive in future VC rounds, but in this case probably secondary to my first point. There is always factoring (ie. sell the receivable for a large fraction — typically 90-95% — of the face value). It eats into your profit margin, but you get the money up front, the customer pays on net30 (or whatever) terms, and you don't have to deal with billing. It works best when you need the money to buy materials or build capacity in order to fulfill the order. The longer the lead time from spending money on materials to delivery and billing, the more attractive factoring becomes. Factoring is common and essential to certain industries like clothing that have very long lead times & where the buyers have leverage to insist on net60 or net90 terms.
- aqme28 6y ago
  Do we know the terms of this deal? It could end up looking a lot like debt in the end.

gkoberger 6y ago

So why not do debt financing? I do agree that it seems to be for the connections, and for all we know they gave up 5% for that $3M.

echelon 6y ago
> So why not do debt financing? If you do debt financing, does that look unattractive to future VC rounds? Have any successful startups done primarily debt financing?
- pbadg3r 6y ago
  Debt tends to be hard for super new companies, even with orders in hand. If you are developing a new product and don't have cash up front, there's a good chance you never deliver, and both lenders and potential customers know that. Also looks unattractive in future VC rounds, but in this case probably secondary to my first point.
  - webmaven 6y ago
    > Debt tends to be hard for super new companies, even with orders in hand. If you are developing a new product and don't have cash up front, there's a good chance you never deliver, and both lenders and potential customers know that. Also looks unattractive in future VC rounds, but in this case probably secondary to my first point. There is always factoring (ie. sell the receivable for a large fraction — typically 90-95% — of the face value). It eats into your profit margin, but you get the money up front, the customer pays on net30 (or whatever) terms, and you don't have to deal with billing. It works best when you need the money to buy materials or build capacity in order to fulfill the order. The longer the lead time from spending money on materials to delivery and billing, the more attractive factoring becomes. Factoring is common and essential to certain industries like clothing that have very long lead times & where the buyers have leverage to insist on net60 or net90 terms.
aqme28 6y ago
Do we know the terms of this deal? It could end up looking a lot like debt in the end.