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Kickstarter is Debt

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Re: Kickstarter is Debt

#21

Post by steve19 »

Johnny555 wrote: post #16
steve19 wrote: post #13

It's not debt, there is no interest. It's just a liability. No different to Amazon taking a pre-order on an upcoming book. Judging how many largish kickstarters end in disaster, I am not surprised the people running them don't use accountants.

The interest rate doesn't determine whether or not something is debt - I have a 0% interest car loan, yet it's still considered debt. Kickstarter funds are a loan for a finite time that's paid back in product. And if the product costs more to produce than estimated, that cost overrun is the cost of the debt - i.e. interest.

Debt is the state of owing money. This is the definition of debt. Kickstarters do not owe anyone money.

Re: Kickstarter is Debt

#22

Post by sportanova »

Dwolb wrote: post #17
bhouston wrote: post #4

Just to be clear though debt is actually a preferred type of financing because it is one of the cheapest forms. A venture investor is expecting a 10x return on their investment. That means they are expected a much greater realized interest rate than debt - money that effective comes out of the pockets of the business owners. If you can get debt, if is often preferred if you can figure out how to manage the default ri…

Right, but MM's "optimal capital structure" isn't taking into account if your company can't raise debt on the public markets while maintaining cash flow. Debt is essentially selling a put option on your assets, but early stage companies don't have substantial assets. That's why convertible debt exist and why early stage financers demand equity.

i always enjoy the "x is essentially a ". I feel like it's moderately common in startup thought leader type posts

Re: Kickstarter is Debt

#23

Post by jacquesm »

duhruh wrote: post #20
orky56 wrote: post #6

In summary: 1) Kickstarter is debt financed by consumers directly (B2C) motivated by early access to product. 2) Factory financing is debt financed by production motivated by early fulfillment. 3) Purchase order financing is debt financed by consumers indirectly through retailers (typically) (B2B2C) motivated by early access to consumers. 4) Venture debt is debt financed by investors motivated by continued confidence…

So really, any form of financing a company would be considered debt.

No, raising capital will also finance a company and is not debt, you give the people that give you capital a portion of the future revenues and value created in return.

Re: Kickstarter is Debt

#24

Post by Johnny555 »

steve19 wrote: post #21
Johnny555 wrote: post #16

Earlier quoted context omitted.

The interest rate doesn't determine whether or not something is debt - I have a 0% interest car loan, yet it's still considered debt. Kickstarter funds are a loan for a finite time that's paid back in product. And if the product costs more to produce than estimated, that cost overrun is the cost of the debt - i.e. interest.

Debt is the state of owing money. This is the definition of debt. Kickstarters do not owe anyone money.

Debt isn't necessarily paid in money, depending on the terms of the contract, debt could be paid in cash, labor, gold, corn, oil, hogs, or pretty much any commodity that can have a value set on it.

In this case, Kickstarter funders expect to be paid in product (or whatever perk was promised to them).

Re: Kickstarter is Debt

#25

Post by robzyb »

bhouston wrote: post #4

Just to be clear though debt is actually a preferred type of financing because it is one of the cheapest forms. A venture investor is expecting a 10x return on their investment. That means they are expected a much greater realized interest rate than debt - money that effective comes out of the pockets of the business owners. If you can get debt, if is often preferred if you can figure out how to manage the default ri…

> Just to be clear though debt is actually a preferred type of financing because it is one of the cheapest forms.

Honestly? That statement seems a tad simplistic to me. Especially in the context of startups.

Re: Kickstarter is Debt

#26

Post by vidarh »

bhouston wrote: post #4

Just to be clear though debt is actually a preferred type of financing because it is one of the cheapest forms. A venture investor is expecting a 10x return on their investment. That means they are expected a much greater realized interest rate than debt - money that effective comes out of the pockets of the business owners. If you can get debt, if is often preferred if you can figure out how to manage the default ri…

> Just to be clear though debt is actually a preferred type of financing because it is one of the cheapest forms.

That is the central thesis of the linked article as well.

Re: Kickstarter is Debt

#27

Post by aikah »

Depends on the project. If you are promised a physical product , then it is a sale :

http://backersmanual.com/2014/03/19/crowdfunding-terminology...

I think that link provide an accurate description of what some transactions on KS are legally.

The problem is that KS TOS are vague on purpose, entertaining the confusion as backers have no legal status (hence the endless debate about what "backing" is), which is illegal in a lot of European countries. One day however even US justice will have to decide what is the legal status of backers once and for all.

Re: Kickstarter is Debt

#28

Post by MarkvW »

Kickstarter is UNSECURED debt. Almost certainly unsecured debt, positioned well below undersecured secured creditors with liens on everything.

Kickstarter is tiny unsecured debt. Debt that is not economically worth any collection effort.

Kickstarter is all about faith and trust. Good luck with that.

Re: Kickstarter is Debt

#30

Post by hguant »

robzyb wrote: post #25
bhouston wrote: post #4

Just to be clear though debt is actually a preferred type of financing because it is one of the cheapest forms. A venture investor is expecting a 10x return on their investment. That means they are expected a much greater realized interest rate than debt - money that effective comes out of the pockets of the business owners. If you can get debt, if is often preferred if you can figure out how to manage the default ri…

> Just to be clear though debt is actually a preferred type of financing because it is one of the cheapest forms. Honestly? That statement seems a tad simplistic to me. Especially in the context of startups.

What makes a start up different than any other business?
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