A quick heuristic for whether you should use debt or equity: Is this a money machine?
Some uses of capital are clear money machines: $1 in = >$1 out.
Buy inventory, sell it = money machine
Buy FB ads, payback in 3 months = money machine
It’s a question of certainty of quantity + timing of reruns and repeatability.
Buy inventory, sell it = money machine
Buy FB ads, payback in 3 months = money machine
It’s a question of certainty of quantity + timing of reruns and repeatability.
Hiring engineers to expand our product into enterprise us *not* a money machine. That’s capital to try to change the trajectory of the business
If it’s a money machine, use debt, if not use equity.
There’s an emerging spectrum of equity-like (SEAL) and debt-like (RBF) things this applies to too
There’s an emerging spectrum of equity-like (SEAL) and debt-like (RBF) things this applies to too
At a certain point an entire business can become so predictable it basically is a money machine, which I think is the upshot of @Alex_Danco Debt us Coming thesis. A Series C SaaS firm is enough of a money machine they should just raise debt instead of more equity
But early on I think most companies will want to use equity-like capital for their core bets + debt-like to optimize money machines as they prove them out.
Yes this is the kind of thing I think about over my Sunday morning coffee...
Happy Sunday 
