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I’ve been doing a lot of research on debt as an alternative to VC. A ton of options out there. Keeping notes here for anyone interested https://www.trypaper.io/

I’ve been doing a lot of research on debt as an alternative to VC. A ton of options out there. Keeping notes here for anyone interested https://www.trypaper.io/ https://www.trypaper.io/

cambel 5y ago
Just be aware with debt there are other forcing functions at play
- mritchie712 5y ago
  Absolutely. Just another option that's not talked about as much, so I've been trying to shed some light on it. If want capital without the "help" from VCs, there are options there, but as you said, with different downsides (mainly being on the hook for repayment).
bluGill 5y ago
It isn't unheard of for banks to get someone on your board as part of the debt agreement. Though probably only in deals far larger than anything in the VC range.
- mritchie712 5y ago
  Many of the debt players are realizing their advantage over VC is lack of control over your company. For example, check out https://timiacapital.com/ https://timiacapital.com/. A lot of their marketing is around "Retaining control" and "No warrants and no harsh covenants".
  - martinald 5y ago
    It seems quite crazy that this hasn't happened earlier. It seems to me most VC rounds are usually used to mostly finance sales and marketing growth, which if they have a positive RoI should really be debt, as that's the whole point of it! Equity funding to me should be used less for that and more for R&D and product development where the RoI is harder to calculate, or may not exist at all.
    - JanisL 5y ago
      I think the reverse repo situation sheds some light on why this wasn't happening as much earlier: https://fred.stlouisfed.org/series/RRPONTSYD/ https://fred.stlouisfed.org/series/RRPONTSYD/ Put simply there's now a glut of money that is waiting to be invested via loans in anything that has a good ROI with low enough risks. In the past due to higher interest rates and various other factors (including regulatory) this glut of money just didn't exist before.
      - martinald 5y ago
        Well, go back a few decades and all businesses were pretty much debt financed. VC wasn't around - maybe a few friends and family rounds, but bank debt was the only option for growing a business (at least until you got to the public markets). This seems to have been lost over the past 20+ years. I wouldn't even think about going to a bank with a smallish business for financing, you'd instantly think of equity funding instead. Hopefully this changes because debt really is more sensible for many startups.
        JanisL 5y ago
        The last time I went to a bank I remember thinking the loan terms were pretty bad for the business I was involved in relative to equity approaches. Why do you think there's been a shift towards equity financing? I wasn't looking at anything in this space a few decades ago, is it because debt financing options are worse or equity better?
  - engineeringwoke 5y ago
    What kind of competent investor does a debt deal that doesn't place them higher in the cap structure?
    - ptudan 5y ago
      The best part about debt deals is that if the company collapses, you can take over all IP as it's the only asset worth anything.
jacquesm 5y ago
Be sure to read the fine print with debt and to realize that even if the interest rates are good it's not necessarily going to stay that way unless you negotiate it to be. No financing option is without risk.

I’ve been doing a lot of research on debt as an alternative to VC. A ton of options out there. Keeping notes here for anyone interested https://www.trypaper.io/ https://www.trypaper.io/

cambel 5y ago

Just be aware with debt there are other forcing functions at play

mritchie712 5y ago
Absolutely. Just another option that's not talked about as much, so I've been trying to shed some light on it. If want capital without the "help" from VCs, there are options there, but as you said, with different downsides (mainly being on the hook for repayment).

bluGill 5y ago

It isn't unheard of for banks to get someone on your board as part of the debt agreement. Though probably only in deals far larger than anything in the VC range.

mritchie712 5y ago
Many of the debt players are realizing their advantage over VC is lack of control over your company. For example, check out https://timiacapital.com/ https://timiacapital.com/. A lot of their marketing is around "Retaining control" and "No warrants and no harsh covenants".
- martinald 5y ago
  It seems quite crazy that this hasn't happened earlier. It seems to me most VC rounds are usually used to mostly finance sales and marketing growth, which if they have a positive RoI should really be debt, as that's the whole point of it! Equity funding to me should be used less for that and more for R&D and product development where the RoI is harder to calculate, or may not exist at all.
  - JanisL 5y ago
    I think the reverse repo situation sheds some light on why this wasn't happening as much earlier: https://fred.stlouisfed.org/series/RRPONTSYD/ https://fred.stlouisfed.org/series/RRPONTSYD/ Put simply there's now a glut of money that is waiting to be invested via loans in anything that has a good ROI with low enough risks. In the past due to higher interest rates and various other factors (including regulatory) this glut of money just didn't exist before.
    - martinald 5y ago
      Well, go back a few decades and all businesses were pretty much debt financed. VC wasn't around - maybe a few friends and family rounds, but bank debt was the only option for growing a business (at least until you got to the public markets). This seems to have been lost over the past 20+ years. I wouldn't even think about going to a bank with a smallish business for financing, you'd instantly think of equity funding instead. Hopefully this changes because debt really is more sensible for many startups.
      - JanisL 5y ago
        The last time I went to a bank I remember thinking the loan terms were pretty bad for the business I was involved in relative to equity approaches. Why do you think there's been a shift towards equity financing? I wasn't looking at anything in this space a few decades ago, is it because debt financing options are worse or equity better?
- engineeringwoke 5y ago
  What kind of competent investor does a debt deal that doesn't place them higher in the cap structure?
  - ptudan 5y ago
    The best part about debt deals is that if the company collapses, you can take over all IP as it's the only asset worth anything.

jacquesm 5y ago

Be sure to read the fine print with debt and to realize that even if the interest rates are good it's not necessarily going to stay that way unless you negotiate it to be. No financing option is without risk.