Avi Freedman resembles any other founder: He wants to develop a fantastic company. In this case network analytics platform Kentik, and he requires venture capital to do it. Like basically all creators, he doesn’t like the dilution that comes from taking vast amounts from VCs in order to grow. There’s constantly been an attractive option to this problem, however one that features its own tradeoffs.
The word has unfavorable undertones, however the truth is that similar to equity capital, debt is a key tool in the corporate finance tool kit. Cautious use of debt with the right terms and conditions can cut the cost of capital for a startup substantially, saving founders and early-stage investors from serious dilution as a business scales. Utilized too heavily or incorrectly however, and debt can turn a bad monetary quarter into a dead company, stat.
Creators, particularly those who run business with repeating earnings, are significantly hearing the financial obligation pitch from bankers and peers, leading lots of to consider financial obligation alternatives much earlier than has generally been the standard. Boards are also getting more comfortable with the idea of a start-up taking on early debt to extend runways and double down on development.
Let’s stroll through how a founder sees financial obligation today and discuss what the market looks like for debt options. Freedman was valuable in illuminating his current fundraise, including the series of term sheets he got, and was willing to share his experience and thinking on how he approached his latest financing.
Debt and COVID-19
Some context to get started. Kentik is a six-year-old SaaS platform that has raised more than $60 million in equity capital, according to Crunchbase, including a seed round led by First Round Capital and a Series A led by the now-defunct August Capital (plus the business’s newest equity/debt round we’re talking about today). Freedman himself has been a long-time business owner, building the very first ISP in Philadelphia back in 1992. Kentik was his first real “venture-backed” organisation in the Silicon Valley startup model.
Article curated by RJ Shara from Source. RJ Shara is a Bay Area Radio Host (Radio Jockey) who talks about the startup ecosystem – entrepreneurs, investments, policies and more on her show The Silicon Dreams. The show streams on Radio Zindagi 1170AM on Mondays from 3.30 PM to 4 PM.