Hacker News Reader

Comment by martinald | Hacker News Reader

It seems quite crazy that this hasn't happened earlier. It seems to me most VC rounds are usually used to mostly finance sales and marketing growth, which if they have a positive RoI should really be debt, as that's the whole point of it!

Equity funding to me should be used less for that and more for R&D and product development where the RoI is harder to calculate, or may not exist at all.

View on HN

I think the reverse repo situation sheds some light on why this wasn't happening as much earlier: https://fred.stlouisfed.org/series/RRPONTSYD/

Put simply there's now a glut of money that is waiting to be invested via loans in anything that has a good ROI with low enough risks. In the past due to higher interest rates and various other factors (including regulatory) this glut of money just didn't exist before.

Well, go back a few decades and all businesses were pretty much debt financed. VC wasn't around - maybe a few friends and family rounds, but bank debt was the only option for growing a business (at least until you got to the public markets).

This seems to have been lost over the past 20+ years. I wouldn't even think about going to a bank with a smallish business for financing, you'd instantly think of equity funding instead. Hopefully this changes because debt really is more sensible for many startups.

The last time I went to a bank I remember thinking the loan terms were pretty bad for the business I was involved in relative to equity approaches. Why do you think there's been a shift towards equity financing? I wasn't looking at anything in this space a few decades ago, is it because debt financing options are worse or equity better?

Reply on news.ycombinator.com