

Ask HN: why don't startups/high growth companies raise debt rather than equity? - charlesbonello

For the earliest stage companies, it&#x27;s pretty obvious why they don&#x27;t: they can&#x27;t. But it seems like a lot of companies with great traction (~$1 MM in revenue), recurring revenue (subscription to content, products or software) and need are out there raising VC money in what amounts to equity (I&#x27;m counting convertible debt here, too).  Why don&#x27;t they try to use forward receivables to raise debt either between or in place of an equity round, which even at a high interest rate, is cheaper than equity?
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vasilipupkin
because no investor wants to take an equity like risk for a limited upside
return which debt is. If the company is still early, but doing well, you want
the full upside.

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awaxman11
There are definitely investors that like venture debt risk/reward like the
following firms:

[http://www.goldhillcapital.com/](http://www.goldhillcapital.com/)
[http://www.westerntech.com/](http://www.westerntech.com/)
[http://www.orix.com/](http://www.orix.com/)

There are also some commercial banks with venture debt arms like SVB,
Comerica, and Square 1

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charlesbonello
Both answers are correct, and make sense. I guess my question is
fundamentally: is this a problem of supply (i.e. - not a lot of appetite to
fund debt at these levels) or one of demand (entrepreneurs just prefer
equity).

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danvoell
supply. Banks theoretically would provide debt to a company with 1mm in
revenue, as long as they show the ability to cover the debt payments. But
those companies typically can raise more money based on equity than debt.

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charlesbonello
So the concern is that a debt financing would be smaller than a potential
equity financing by some order of magnitude, as it's constrained by trailing
cash flow rather than future opportunities?

