4 ms·

If you have solid growth, unit economics, and cashflow, you don't need VCs; you can just get a business loan from a bank. Or do an IPO.

by derefr 4y ago

moralestapia 4y ago
Or still talk to VCs, but leverage is on your side now.
corybrown 4y ago
"just"
- derefr 4y ago
  No “just” about it; with those things in place, getting a business loan is far simpler than getting a VC to invest in you. To a (big) bank, your business is just an entity with a credit score. That credit score is based on those factors you listed. No weeks/months of glad-handing and human-factors evaluation like VCs do; hand a bank the data, they plug-and-chug, and you either get a loan or you don’t.
  - randomsearch 4y ago
    Banks are insanely risk averse. VC fundraising can be faster, simpler, and is possible when banks won’t go near you.
    - derefr 4y ago
      Yes, and? We're talking specifically about companies that have "solid growth, unit economics, and cashflow" — i.e. which have a stable business model + revenue engine. Businesses that have been de-risked. Businesses where the only reason they're not bigger already, is that they need money to throw into the coal furnace to power the train up the hockey-stick hill. At that stage of a business, you wouldn't be taking seed-stage or series-A funding; it'd be series-B or series-C — where the type of investors who do those investments are just as risk-averse as banks, and are looking at essentially the same things banks look at. At that stage of a business, you know there isn't anything on the horizon that'll kill your share price. Your market cap is stable (save for the growth you're trying to enable.) So you should be extremely wary to let go of any more equity. You should highly prefer debt-backed investment (i.e. loans) over equity-backed investment, because your equity value increase from the growth should be predictably paying off that debt, and then some, likely the same fiscal year you take on the loan. Selling any equity at that period in a company's growth is throwing earnings down the drain.
  - carnitine 4y ago
    They’re probably more talking about the IPO part. Which is far more strenuous than any VC’s process.
  - TomSwirly 4y ago
    > getting a business loan is far simpler than getting a VC to invest in you. You can't. Be serious. Most startups have no revenue. What bank would lend you money?
nostrademons 4y ago
And it's going to be a good decade for those kind of startups, and a bad decade for the smoke & mirrors tell-a-starry-eyed-story VC-funded kind. Aside from funding or lack thereof, the changing relative prices that come with inflation dramatically change the structure of markets, which is going to make many old ways of doing business obsolete and open the door to new firms.
cm2012 4y ago
Banks will loan you at most 10% of your last 12 months revenue for an uncollateralized loan. Not in the same world as VCs. And "just" do an IPO, wow.
- Guest42 4y ago
  Amazon did it and look at where they are today. They weren't even profitable. What's the problem? /s
- 2Gkashmiri 4y ago
  in india, banks give you working capital loan with floating charge on your stock/debtors at like 25% of your previous FY turnover... you could theoretically take up more loan but the interest would negate any "earning" considering the banks charge like 10-15% interest on the amount so if your turnover is 10 million rupees, you could get 2.5 Mil loan but the interest on it would be 325k inr which i am sure not many businesses can sustain normally.
- cco 4y ago
  While that does represent some modest drag on your business, in this hypothetical you have very good foundations and you could outperform that 10% interest without too much trouble. To wit in this scenario you're a software company, not a restaurant, you should scale far more easily than brick and mortar. And 10% interest to preserve your cap table and board?
  - nixgeek 4y ago
    What GP is saying is you can only get a note of 10% size of your trailing 12 months revenue, this is quite different to 10% APR.
RivieraKid 4y ago
Solid growth, unit economics, and cashflow doesn't always imply low risk, so debt financing is not necessarily optimal. For example, the company has been growing 2x per year for the last few years and there's a good chance this will continue for the next several years. But only if the company invests a massive sum of money with a substantial risk.

If you have solid growth, unit economics, and cashflow, you don't need VCs; you can just get a business loan from a bank. Or do an IPO.

by derefr 4y ago

If you have solid growth, unit economics, and cashflow, you don't need VCs; you can just get a business loan from a bank. Or do an IPO.

moralestapia 4y ago

Or still talk to VCs, but leverage is on your side now.

corybrown 4y ago

"just"

derefr 4y ago
No “just” about it; with those things in place, getting a business loan is far simpler than getting a VC to invest in you. To a (big) bank, your business is just an entity with a credit score. That credit score is based on those factors you listed. No weeks/months of glad-handing and human-factors evaluation like VCs do; hand a bank the data, they plug-and-chug, and you either get a loan or you don’t.
- randomsearch 4y ago
  Banks are insanely risk averse. VC fundraising can be faster, simpler, and is possible when banks won’t go near you.
  - derefr 4y ago
    Yes, and? We're talking specifically about companies that have "solid growth, unit economics, and cashflow" — i.e. which have a stable business model + revenue engine. Businesses that have been de-risked. Businesses where the only reason they're not bigger already, is that they need money to throw into the coal furnace to power the train up the hockey-stick hill. At that stage of a business, you wouldn't be taking seed-stage or series-A funding; it'd be series-B or series-C — where the type of investors who do those investments are just as risk-averse as banks, and are looking at essentially the same things banks look at. At that stage of a business, you know there isn't anything on the horizon that'll kill your share price. Your market cap is stable (save for the growth you're trying to enable.) So you should be extremely wary to let go of any more equity. You should highly prefer debt-backed investment (i.e. loans) over equity-backed investment, because your equity value increase from the growth should be predictably paying off that debt, and then some, likely the same fiscal year you take on the loan. Selling any equity at that period in a company's growth is throwing earnings down the drain.
- carnitine 4y ago
  They’re probably more talking about the IPO part. Which is far more strenuous than any VC’s process.
- TomSwirly 4y ago
  > getting a business loan is far simpler than getting a VC to invest in you. You can't. Be serious. Most startups have no revenue. What bank would lend you money?

nostrademons 4y ago

And it's going to be a good decade for those kind of startups, and a bad decade for the smoke & mirrors tell-a-starry-eyed-story VC-funded kind. Aside from funding or lack thereof, the changing relative prices that come with inflation dramatically change the structure of markets, which is going to make many old ways of doing business obsolete and open the door to new firms.

cm2012 4y ago

Banks will loan you at most 10% of your last 12 months revenue for an uncollateralized loan. Not in the same world as VCs. And "just" do an IPO, wow.

Guest42 4y ago
Amazon did it and look at where they are today. They weren't even profitable. What's the problem? /s
2Gkashmiri 4y ago
in india, banks give you working capital loan with floating charge on your stock/debtors at like 25% of your previous FY turnover... you could theoretically take up more loan but the interest would negate any "earning" considering the banks charge like 10-15% interest on the amount so if your turnover is 10 million rupees, you could get 2.5 Mil loan but the interest on it would be 325k inr which i am sure not many businesses can sustain normally.
cco 4y ago
While that does represent some modest drag on your business, in this hypothetical you have very good foundations and you could outperform that 10% interest without too much trouble. To wit in this scenario you're a software company, not a restaurant, you should scale far more easily than brick and mortar. And 10% interest to preserve your cap table and board?
- nixgeek 4y ago
  What GP is saying is you can only get a note of 10% size of your trailing 12 months revenue, this is quite different to 10% APR.

RivieraKid 4y ago

Solid growth, unit economics, and cashflow doesn't always imply low risk, so debt financing is not necessarily optimal. For example, the company has been growing 2x per year for the last few years and there's a good chance this will continue for the next several years. But only if the company invests a massive sum of money with a substantial risk.