Venture debt is like a delicious sandwich that only costs ten cents, but occasionally explodes in your face. If I were running a startup, I don't think I'd ever take it.
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I disagree and you do too. Debt adds great risk without great upside. Follow on equity investments de-risk while maintain or increase upside. Suppose you're investing in Facebook and you see it's going really well and Zuckerberg says he wants to take on some debt.
As an investor, you know that if he takes on debt, there's a chance your investment goes to zero. If he takes on more equity you get $750 million instead of a billion.
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The chance of a startup going to zero is much higher when taking on more equity — at higher valuations — compared to taking on venture debt. Debt causes all sorts of problem, but it is more conservative than equity.
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There are definitely some issues with taking on equity at high valuations, but it's hard to generalize that equity > debt or vice versa.
End of conversation
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