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Comment by neom | Hacker News Reader

Kinda how we built DigitalOcean in the early days, the software was venture funded but the HW was funded as lease lines and credit against the HW we owned originally + a decent business plan based on the growth. It's a good(/slightly scary) strategy! Highly recommend more folks look at credit facilities.

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>Highly recommend more folks look at credit facilities.

Are you suggesting funding with lines of credit vs "free" money from VC which diminishes the founder's control?

It's very different types of money. Both are dangerous but vc money is considerably less dangerous (imo). If you take someone like Fortress as your capital group (credit line) you're going to lose the company if you f up, period. With VC, you have more latitude to have a conversation. We ran a very difficult path to build DO, I'm sure a lot of people lost sleep many nights, but if you're very sure about the business, credit facilities can be helpful, just know they're not joke. Neither is better or worse than the other, they're different but both useful. My point was if you are sure about the business credit facilities can be really helpful and are under explored for many startups (granted HW is often a factor in credit)

VC money is super expensive. Banks are the cheapest option, especially if you own property you can just use that that get a bunch of working capital. Any capital for equity should if you can swing it be done as convertible loans so that you at least have the option to pay it back if that is in your best interest. It also keeps the cap table clean and you (the founders) solidly in control until you decide to change that.

I've seen more than one case where a company was looking to do a round but they had not even considered the option of taking out a bank loan against their inventory. Especially for short term liquidity that's much, much better than VCs buying stock.

> VC money is super expensive.

it's expensive in the long term, if your company is successful. In the short term, it is cheap, because you don't pay interest on VC money, which makes your cashflow much better.

Bank loans/bonds are expensive up-front, because you are obligated to service interest. It's cheap in the long run because once your business generates revenue, you can use them to pay off the loan, and slowly wean it off, or find an even lower interest loan to refinance off.

Of course, a bank will only lend if you have collateral, while VC will "lend" if the business idea is good.

I think you have that reversed. For the past few years, credits if you could get them were basically free money given the very low interest rates and the tax shield. Meanwhile VC wants shares. You are actually selling parts of your company, it’s not only about control.

That works as long as you maintain that growth. Too long a bump and you're waiting tables ;) But at least that didn't happen to DO. Being create with financing is probably a very important component in starting companies that have a lot of capital expenses to make, and it is the kind of thing that your typical tech founder usually has little experience with.

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