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> sold equity in the company. > diminishing the payout the founders would get if the company pays dividends or is sold That’s VC debt
by 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 agoIt 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 agoYeah, debt is better for the founder which is why investors want priced rounds.
- nylonstrung 3y agoNeither 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 agoI’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 agoThis 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 agoAs 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.