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 think that’s *the* point: the upside of taking debt is mostly the founder’s, because she gets to keep her equity. She only gets more and more diluted with addtl equity rounds, whereas other investors usually do their pro-ratas.
The investors get diluted exactly as much. Investors have to pay for pro-ratas. Logically they're equivalent to separate investments — which they are for new investors in that round.
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What percent of the time do your founders participate in pro-ratas? You fund a lot of Rockefellers? Correct me if wrong, but oftentimes the funding documents allow the investors certain rights to participate in follow on rounds that founders don't have.
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From my exp. when a startup is doing well most investors will follow on with their eyes almost closed, esp. in the Valley, no? AUM/dry powder doesn’t seem to be a limitation but where absolute dollar amount returned seems to be a key “limitation”?
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And I think it’s a *big stretch* to say a non-leading follow-on decision is comprable to a new inv decision. YC, for example, doesn’t even ask questions if the round lead is “ok.” Of course on extreme, but helps frame the disc.
End of conversation
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Btw, I would love to see you change your mind in a thread one day hahahahahaha. Never seen
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Investors can participate in the pro rata, most founders don't have that option.
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