Venture Investors Start Lending A Hand.

from the discipline-of-debt dept

This past weekend I got into a conversation with someone who started talking about his theory on the “discipline of debt”, saying that having debt makes you much more focused on succeeding, since you have the pressure to make the interest payments. It really helps to focus and motivate you. For a while now I’d been wondering why companies always look to raise venture capital instead of taking on loans. The obvious answer is that a capital investment doesn’t need to be paid back like a loan. However, it also means there’s no dilution in ownership, which has some very big advantages as well. Now it seems, more and more small technology companies are investigating debt financing instead of equity financing. Venture capitalists are getting into the game by setting up debt funds. They like the idea of receiving those interest payments, since it still seems like IPOs are a long way off. Of course, as is usually the case with loans, it’s difficult for the companies that really need them to get them. Most loans are going to companies that have the strongest venture backers. If the IPO window remains so closed, though, I wouldn’t be surprised to see more “riskier” debt funds start popping up to fill the need for startups looking for some extra cash.

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