Kickstarter is Debt • Hacker News Board

Re: Kickstarter is Debt

#41

Post by phire » Thu, Dec 03, 2015, 6:14 AM UTC

ThrustVectoring wrote: post #3

This relates to why Kickstarter campaigns can be very lucrative to run - you raise funds without relinquishing any of your equity, which can later be sold for massive amounts of money (see: Oculus getting sold to Facebook)

Oculus might end up being the most successful product/company to be kickstarted. They probably are the most successful money wise, going from a simple prototype on a forum to being acquired for 2billion cash/stock.

They were clever and sold (reasonably functional) devkits, not final products for their kickstarter.

I won't regard them as fully successful until they release a final product that meets expectations (as in, facebook doesn't write them off as a loss)

Product wise, Pebble is the most successful so far, it was past the prototyping stage before for the first kickstarter (though adding extra features probably set them back) Right now they are up to major version 4 of their product. Long term, I don't think they will be more successful than Oculus.

Re: Kickstarter is Debt

#42

Post by eru » Thu, Dec 03, 2015, 6:45 AM UTC

sportanova wrote: post #22

Dwolb wrote: post #17

Earlier quoted context omitted.

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

Put and call options are about as basic as it gets in finance.

Though, the more and more I think about the grand-parents comment, the less I understand it:

With debt, you can go into default: so all your assets go to the creditor, instead of you paying. That's like buying a put option, not selling one.

Re: Kickstarter is Debt

#43

Post by azernik » Thu, Dec 03, 2015, 6:49 AM UTC

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.

The big difference is that startups generally can't get bank loans on the scale they need, because the risk is so high that it's bad for the lender. If I could replace an investor with a 10% staake with a bank that I have to pay back at 8% interest, I'd take it in a heartbeat.

Re: Kickstarter is Debt

#44

Post by Dwolb » Thu, Dec 03, 2015, 7:13 AM UTC

eru wrote: post #42

sportanova wrote: post #22

Earlier quoted context omitted.

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

Put and call options are about as basic as it gets in finance. Though, the more and more I think about the grand-parents comment, the less I understand it: With debt, you can go into default: so all your assets go to the creditor, instead of you paying. That's like buying a put option, not selling one.

Yeah you're right. It should say something like the payoff of debt owned by the creditor looks like being short a put.

Re: Kickstarter is Debt

#45

Post by [deleted] » Thu, Dec 03, 2015, 7:27 AM UTC

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…

[deleted]

Re: Kickstarter is Debt

#46

Post by wjnc » Thu, Dec 03, 2015, 7:59 AM UTC

[deleted] wrote: post #45

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…

[deleted]

No, they have a different risk-reward structure. They finance those firms that probably cannot issue debt. They take equity for their funding. That's what parent is saying. Once you are in the league of issuing debt, you probably want to. Since it suggests that you are deemed to be an adequate counterparty. A small chance of default wreaks havocs on nominal interest rates.

Re: Kickstarter is Debt

#47

Post by [deleted] » Thu, Dec 03, 2015, 8:07 AM UTC

wjnc wrote: post #46

[deleted] wrote: post #45

Earlier quoted context omitted.

[deleted]

No, they have a different risk-reward structure. They finance those firms that probably cannot issue debt. They take equity for their funding. That's what parent is saying. Once you are in the league of issuing debt, you probably want to. Since it suggests that you are deemed to be an adequate counterparty. A small chance of default wreaks havocs on nominal interest rates.

[deleted]

Re: Kickstarter is Debt

#48

Post by rdlecler1 » Thu, Dec 03, 2015, 8:15 AM UTC

hguant wrote: post #30

robzyb wrote: post #25

Earlier quoted context omitted.

> 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?

From a lenders perspective: Credit worthiness, free cash flow, ability to service loans, lack of collateral.

Re: Kickstarter is Debt

#49

Post by [deleted] » Thu, Dec 03, 2015, 8:48 AM UTC

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.

[deleted]

Re: Kickstarter is Debt

#50

Post by rplnt » Thu, Dec 03, 2015, 9:01 AM UTC

FussyZeus wrote: post #15

I've kickstarted a few things, but only with tiny amounts ($24 and $12) and only for things that I couldn't find in the open market. I think Kickstarter has great potential and has brought about numerous things, but just like any tool it's got people who know how to use it and do well, and people who don't and blow their foot off. This goes both ways: A lot of the large kickstarters that make the news usually have go…

> I think Kickstarter has great potential

I think it had a great potential. But they ruined their brand with allowing basically anything on it. I'd say it's similar to Ebay in a way. Of course it's better for them ($$$)... but the "potential" is not there anymore.