4 ms·

They didn't take debt— they sold equity in the company. In reality this makes the company MORE financially healthy, while diminishing the payout the founders w

They didn't take debt— they sold equity in the company. In reality this makes the company MORE financially healthy, while diminishing the payout the founders would get if the company pays dividends or is sold

hotstickyballs 3y ago
> sold equity in the company. > diminishing the payout the founders would get if the company pays dividends or is sold That’s VC debt
- im_down_w_otp 3y ago
  It isn’t. Venture debt is a whole different thing. Disclosure: is founder who has raised money through both equity financing and debt financing.
  - svnt 3y ago
    Yeah, debt is better for the founder which is why investors want priced rounds.
    - nylonstrung 3y ago
      Neither is "better" or "worse" for the founder- this is entirely dependent on terms. This is like saying a credit card is "better" than a home equity loan As with equity there are MANY investors that only deal in debt- SVB's debt army for example. Debt is problematic as it weakens the P&L by requiring the company to make interest payments. The rates of which (in venture) are currently in excess of credit card APRs
      - svnt 3y ago
        I’m speaking specifically of early investment in debt, which does not have the impacts you describe and is typically intended to convert to equity. In my experience it is better for the founder than a priced round in basically every sense. However it is easier to wash out and leaves no cap table trace, which is why some investors do not do it very much anymore.
        nylonstrung 3y ago
        This type of convertible note you're describing is almost never used these days. As I VC I talked 1000s of companies fundraising and it was not something founders ever sought out SAFEs are almost always the alternative to priced rounds
        svnt 3y ago
        As a VC you would be talking to people seeking priced rounds, not convertible debt. Angels started using SAFEs because YC started pushing them. It doesn’t mean that convertible notes aren’t better for founders. Founders will conform to the market.
coldpie 3y ago
I mean, it's not free money. The people who gave them the money expect to get the money back plus some profit. Whatever fancy financial words people like to doll that up with, it still sounds to me like debt.
- nylonstrung 3y ago
  It's literally not debt. Debt is when you borrow money or issue bonds with obligation to repay the principal, plus interest This is an equity investment: the VCs buy an ownership stake in the company, which they share with the founders. They don't receive "profit"- they get a payout proportion to their ownership stake if the company is sold or retained earnings if the company issues dividends (not common) Source: I'm a founder and former VC.
  - coldpie 3y ago
    I understand, but it doesn't seem like an interesting distinction to me. It's all just different financial ways to say the same thing: they got money from someone and will be expected to pay it back with even more on top somehow later.

hotstickyballs 3y ago

> sold equity in the company. > diminishing the payout the founders would get if the company pays dividends or is sold That’s VC debt

im_down_w_otp 3y ago
It isn’t. Venture debt is a whole different thing. Disclosure: is founder who has raised money through both equity financing and debt financing.
- svnt 3y ago
  Yeah, debt is better for the founder which is why investors want priced rounds.
  - nylonstrung 3y ago
    Neither is "better" or "worse" for the founder- this is entirely dependent on terms. This is like saying a credit card is "better" than a home equity loan As with equity there are MANY investors that only deal in debt- SVB's debt army for example. Debt is problematic as it weakens the P&L by requiring the company to make interest payments. The rates of which (in venture) are currently in excess of credit card APRs
    - svnt 3y ago
      I’m speaking specifically of early investment in debt, which does not have the impacts you describe and is typically intended to convert to equity. In my experience it is better for the founder than a priced round in basically every sense. However it is easier to wash out and leaves no cap table trace, which is why some investors do not do it very much anymore.
      - nylonstrung 3y ago
        This type of convertible note you're describing is almost never used these days. As I VC I talked 1000s of companies fundraising and it was not something founders ever sought out SAFEs are almost always the alternative to priced rounds
        svnt 3y ago
        As a VC you would be talking to people seeking priced rounds, not convertible debt. Angels started using SAFEs because YC started pushing them. It doesn’t mean that convertible notes aren’t better for founders. Founders will conform to the market.

coldpie 3y ago

I mean, it's not free money. The people who gave them the money expect to get the money back plus some profit. Whatever fancy financial words people like to doll that up with, it still sounds to me like debt.

nylonstrung 3y ago
It's literally not debt. Debt is when you borrow money or issue bonds with obligation to repay the principal, plus interest This is an equity investment: the VCs buy an ownership stake in the company, which they share with the founders. They don't receive "profit"- they get a payout proportion to their ownership stake if the company is sold or retained earnings if the company issues dividends (not common) Source: I'm a founder and former VC.
- coldpie 3y ago
  I understand, but it doesn't seem like an interesting distinction to me. It's all just different financial ways to say the same thing: they got money from someone and will be expected to pay it back with even more on top somehow later.