

Venture Capital is a Mortgage - thorax
http://blog.yumbunny.com/2009/02/venture-capital-is-mortgage.html

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Not quite. VC is equity funding, so they get a portion of the upside, whereas
debt just gets the capital back plus interest. This means the VCs' interests
are much more closely aligned with the founders'. They both get rich in the
same way: from shares in the company becoming more valuable.

The empirical evidence suggests it's a net win for founders. How many tech
companies IPO without taking VC? Zero, as far as I can tell.

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thorax
Well, it's not saying it's literally a mortgage-- more that it's yet another
area that is often associated with people spending beyond their means.

Ideally, I think founders should skip the VC if they can grow/sustain things
themselves or at least think hard about taking the loss of equity. Not every
business model can make that work, though.

And, of course, not all companies want to go IPO, though I can understand that
desire for a lot of people.

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jacquesm
It very much depends on the competitors out there. VC capital can work like an
arms race, if your competitor takes an infusion of capital and you do not then
two things can happen:

\- they manage to buy themselves the top spot leaving you in the dust

\- they lose focus and think that because of the capital infusion that they
sky is the limit and start doing stupid stuff.

In the second case you clearly are the winner, otherwise you have a real
problem.

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releasedatez
Good analogy but I think one aspect of VC is missed in this piece and it's the
VC's connection to the rest of the world. When a company gets funded by VC,
it's growth potential increases because of the VC's network and connection.
When you get a mortgage, the bank doesn't introduce you to a high bidding
buyer.

