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Comment by stingraycharles | Hacker News Reader

This still doesn't strike me as a very satisfying answer. "growing faster than their current clash flow can handle" can also be phrased as "they are spending too much money". Big investments always raise big expectations, and can ruin a perfectly fine business (model). Why are they spending more than they earn ? At this valuation, it seems like they are going to need a unicorn exit at some point. How are they planning to do that ?

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Business loans are granted all the time on the basis that a company demonstrating profit or a plan to reach profitability (this scenario is more constrained) should theoretically be able to pay the loans back.

Investment rounds are similar in this way but tend to address the "plan to reach profitability" or "plan to exit" scenarios more directly than a loan might. Patreon's making money, but Patreon needs to stay ahead of current and potential competitors, continue to expand, and continue to grow their positive cash flow. Sure they could keep going without raising investments, but if they run the risk of being disrupted by competing implementations of the same business model (a very real risk), it'd be stupid not to raise money to accelerate their growth.

A good software service company does not need to raise so much money to accelerate their growth. Raising more money won't prevent them from being disrupted by a competing implementation. We can argue their action can invite competition from more nimble operations who can take less money from creators. Look up DistroKid, they compete with companies much larger, with far more funding, yet DistroKid is doing very well as a business.

"How are they planning to do that ?"

Probably by making more money, which this fundraise will help them do faster.

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