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This sounds like a useful service. But let's get our terms clear: > no debt You get money now for money you are expected to give back later. That's debt. (It'

This sounds like a useful service. But let's get our terms clear: > no debt You get money now for money you are expected to give back later. That's debt. (It's not a loan as such.) > no discounts Their own screenshots show an example where you only get 94% of the expected annual dollar value of your contracts. That's a discount. (That you grant to your investors, not to your customers.)

OJFord 6y ago
Yeah, the FAQ makes it sound like it's different because they 'buy your recurring revenue'.. but I'm sure if you lost that overnight you'd still owe back the... 'sale price', so it is just plain old debt. 'Supply' chain financing for hip small SaaS businesses.
- tom_mellior 6y ago
  > but I'm sure if you lost that overnight you'd still owe back the... 'sale price', so it is just plain old debt I'm actually not sure about that. Maybe it's the buyer who carries the risk of the customer not paying for the contract. Maybe. It would be great if a company that provides financial services actually explained said services.
  - sgerenser 6y ago
    If they carried the risk the discount would be much more than 6%.
- aparsons 6y ago
  That part is not clear. From the buyer perspective though, unless I intend to use it, or the seller gives me a pretty steep discount, this is equivalent to buying “cash”... so it’s generally a bad investment? I think the numbers may work for the seller because the incremental cost of an additional SaaS subscriber is about $0. But a company needing funding doesn’t inspire a lot of confidence to buy a low upside asset from.
- rrrazdan 6y ago
  Having talked to a competitor of Pipe they do take on the risk of the customer not renewing. So it is indeed not debt. Probably.
  - krisboyz781 6y ago
    which competitor
  - driedchicken 6y ago
    Who takes on the risk of the customer not renewing? If a customer defaults on a contract, the SaaS company has to refund Pipe. That's debt.
kleinsch 6y ago
I'm not an accountant, but this may not be accounting debt. It may sound like debt to you, but selling accounts receivable is a one-time transaction that sells off assets. Your balance sheet no longer includes those assets (in this case subscription payments). Taking on debt means that debt is on your balance sheet. Investors hate debt (they don't want to give you money to pay someone else back), so if you're trying to raise money, it's better to have a smaller balance sheet than a balance sheet full of debt.
- edoceo 6y ago
  ie: Liability If your investor cannot see this as effectively "debt" they are unqualified.
- jacurtis 6y ago
  I think what the parent is saying here is that while it might not "technically" be debt and might not "technically" qualify as a discount, both are still occuring from any practical perspective. It smells like debt, it tastes like debt, it feels like debt, but its technically not debt by an accounting definition. But if it smells like it, feels like it, tastes like it, then isn't it really just debt? Specifically in terms of the "discount", I actually think the discount is extremely fair here. Essentially "the bank" (pipe.com in this case) is taking a 6% discount on an annual contract based on extrapolated monthly or quarterly payments from a client. Yes 6% seems significant. But how often do most startups already offer 10-20% discounts for annual contracts already? How often have you seen $99 a month or $999 per year as an option when signing up for a service? That's a 20% discount. But in Pipe's case, they extrapolate $99 a month out to $1,188 and then take a 6% rake off of that, leaving the startup with $1,116.72. That's actually better than the $999 the company would get from collecting the annual contract directly. So in some way I could argue that there really is no discount here, just "fees". I think that is what the parent comment is trying to get across and I think it is valid. With all that being said, I still think the service fills a vital role and is valuable for an early stage startup. If you are bootstrapping a SaaS for example, you could benefit from launching and your first 100 users essentially pay you annually. In the example above (a service that sells at $99 /mo), you would get $111,672 the first month to fund your project. For a solo founder that would be incredible. Now let's say they average 30 new users each month after that's $33,501.60 per month. You could easily build a solid business without taking on angel or seed investments (which usually come at costly equity exchanges). Even if the company still took on VC funds 18 months down the road in a series A, they would be doing it at a far better valuation which leaves more on the table for the founders and employees. At some point you would want to transition off of this model. But you could wait until your monthly revenues fully cover your expenses. This is a critical threshold that companies often struggle to get to because it usually takes a minimum of a year to get to that level of growth, sometimes much longer. This is why VC exists. Even if you already had VC funding this model will extend your burn chart allowing you to take less VC money because all your VC funds are going towards accelerating growth instead of maintaining the business.
akrymski 6y ago
This is most definitely debt. If these would be ANNUAL contracts, and the factoring company took on the risk (as with Affirm or BNPL solutions) then it wouldn't be debt. But these are NOT guaranteed future cashflows. What happens if a customer churns? "swap out churned contracts with active ones". Yikes. What if there are no active contracts left? You've just defaulted on that loan. The marketing seems to suggest that the investor is taking the risk - that is simply NOT true. It's a regular loan, which isn't a bad thing, and isn't easy to come by for many startups, but the tricky marketing is a major turn off.

OJFord 6y ago

Yeah, the FAQ makes it sound like it's different because they 'buy your recurring revenue'.. but I'm sure if you lost that overnight you'd still owe back the... 'sale price', so it is just plain old debt. 'Supply' chain financing for hip small SaaS businesses.

tom_mellior 6y ago
> but I'm sure if you lost that overnight you'd still owe back the... 'sale price', so it is just plain old debt I'm actually not sure about that. Maybe it's the buyer who carries the risk of the customer not paying for the contract. Maybe. It would be great if a company that provides financial services actually explained said services.
- sgerenser 6y ago
  If they carried the risk the discount would be much more than 6%.
aparsons 6y ago
That part is not clear. From the buyer perspective though, unless I intend to use it, or the seller gives me a pretty steep discount, this is equivalent to buying “cash”... so it’s generally a bad investment? I think the numbers may work for the seller because the incremental cost of an additional SaaS subscriber is about $0. But a company needing funding doesn’t inspire a lot of confidence to buy a low upside asset from.
rrrazdan 6y ago
Having talked to a competitor of Pipe they do take on the risk of the customer not renewing. So it is indeed not debt. Probably.
- krisboyz781 6y ago
  which competitor
- driedchicken 6y ago
  Who takes on the risk of the customer not renewing? If a customer defaults on a contract, the SaaS company has to refund Pipe. That's debt.

kleinsch 6y ago

I'm not an accountant, but this may not be accounting debt. It may sound like debt to you, but selling accounts receivable is a one-time transaction that sells off assets. Your balance sheet no longer includes those assets (in this case subscription payments). Taking on debt means that debt is on your balance sheet. Investors hate debt (they don't want to give you money to pay someone else back), so if you're trying to raise money, it's better to have a smaller balance sheet than a balance sheet full of debt.

edoceo 6y ago
ie: Liability If your investor cannot see this as effectively "debt" they are unqualified.
jacurtis 6y ago
I think what the parent is saying here is that while it might not "technically" be debt and might not "technically" qualify as a discount, both are still occuring from any practical perspective. It smells like debt, it tastes like debt, it feels like debt, but its technically not debt by an accounting definition. But if it smells like it, feels like it, tastes like it, then isn't it really just debt? Specifically in terms of the "discount", I actually think the discount is extremely fair here. Essentially "the bank" (pipe.com in this case) is taking a 6% discount on an annual contract based on extrapolated monthly or quarterly payments from a client. Yes 6% seems significant. But how often do most startups already offer 10-20% discounts for annual contracts already? How often have you seen $99 a month or $999 per year as an option when signing up for a service? That's a 20% discount. But in Pipe's case, they extrapolate $99 a month out to $1,188 and then take a 6% rake off of that, leaving the startup with $1,116.72. That's actually better than the $999 the company would get from collecting the annual contract directly. So in some way I could argue that there really is no discount here, just "fees". I think that is what the parent comment is trying to get across and I think it is valid. With all that being said, I still think the service fills a vital role and is valuable for an early stage startup. If you are bootstrapping a SaaS for example, you could benefit from launching and your first 100 users essentially pay you annually. In the example above (a service that sells at $99 /mo), you would get $111,672 the first month to fund your project. For a solo founder that would be incredible. Now let's say they average 30 new users each month after that's $33,501.60 per month. You could easily build a solid business without taking on angel or seed investments (which usually come at costly equity exchanges). Even if the company still took on VC funds 18 months down the road in a series A, they would be doing it at a far better valuation which leaves more on the table for the founders and employees. At some point you would want to transition off of this model. But you could wait until your monthly revenues fully cover your expenses. This is a critical threshold that companies often struggle to get to because it usually takes a minimum of a year to get to that level of growth, sometimes much longer. This is why VC exists. Even if you already had VC funding this model will extend your burn chart allowing you to take less VC money because all your VC funds are going towards accelerating growth instead of maintaining the business.

akrymski 6y ago

This is most definitely debt. If these would be ANNUAL contracts, and the factoring company took on the risk (as with Affirm or BNPL solutions) then it wouldn't be debt. But these are NOT guaranteed future cashflows. What happens if a customer churns? "swap out churned contracts with active ones". Yikes. What if there are no active contracts left? You've just defaulted on that loan. The marketing seems to suggest that the investor is taking the risk - that is simply NOT true. It's a regular loan, which isn't a bad thing, and isn't easy to come by for many startups, but the tricky marketing is a major turn off.