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Kickstarter is Debt

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Re: Kickstarter is Debt

#51

Post by TeMPOraL »

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

Stacking those together ("X is essentially an Y, 100K of Y are essentially Z, 100K of Z generally behave like U") is what got us the 2008 financial crisis.

Re: Kickstarter is Debt

#52

Post by ryporter »

Another possible source of purchase order financing is existing investors. For example, I am a major investor in (and a board observer of) a young startup that is just ramping up production. I've indicated to them that, should the need arise, I would be willing to provide some financing to help bridge a gap in their cash flow. Obviously, I would have to be very careful not to massively concentrate my financial risks (or to throw good money after bad, if a loan is needed because the company is struggling). However, no bank is going to know them as well as I do, and, if it really is just a cash flow issue, then I am highly incentivized help them out. Any interest I would collect on such a loan would pale in comparison to the increase in the valuation of my stake in the company.

Re: Kickstarter is Debt

#53

Post by miseg »

This may not be relevant on a "start ups" site of HN, but some people argue that debt is inevitable to grow any business, which I would argue against.

Re: Kickstarter is Debt

#54

Post by anifow »

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…

Words like "debt" can be tricky to pin down, which is why we have an accounting profession who's job it is to establish a cohesive and consistent language system with specific meanings.

Kickstarter money represents both revenue and a liability for the company that is doing the project. There are many types of liabilities which are not exactly debt in the sense that we think about a bank loan (which is also a liability). The thing that all liabilities have in common is that they represent an obligation of the company which could require them to spend money or other assets to fulfill. This does not mean they have to satisfy the liability, it just means that there is a financial justification for any work they do relating to that.

I am sure the accounting profession is continually being tested with new business models and trying to capture the financial reality for people who are playing very different games in the world of capital.

Re: Kickstarter is Debt

#55

Post by simonh »

nathancahill wrote: post #10
bhouston wrote: post #8

Earlier quoted context omitted.

Yeah, Kickstarter seems like debt that has no interest, and can be forgiven (in the right circumstances), and it gives you free publicity and a form of market validation. By far the best source of debt I can imagine.

Of course it's the best source of debt for a company because it's completely one-sided. See also: scamming, ponzi schemes and ransomware, all great sources of free money.

Anyone who thinks they can renege on KS commitments needs to take care though. The FTC has pretty clear ideas about people's responsibility to meet their KS commitments.

http://www.npr.org/sections/thetwo-way/2015/06/11/413676042/...

Re: Kickstarter is Debt

#56

Post by jacquesm »

orky56 wrote: post #38
jacquesm wrote: post #23

Earlier quoted context omitted.

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.

Not quite. Raising capital could just be seen as massing liquid assets so you have the funds to finance your business, which could take the form of debt, equity, or just a plain transfer of assets for nothing. With equity financing, the company transfers partial ownership of the company in the form of shares so that they can gain the capital. Having shares in a company does not automatically give you future revenues.…

> Unless you cash out your shares in the secondary market (if it's still a private company), you are not going to see those future revenues directly.

Dividends.

Re: Kickstarter is Debt

#58

Post by ascorbic »

Just over a year ago I ran a Kickstarter campaign[1] that raised just over £45k (about $70k). Because I was applying for R&D tax credits, I filed a tax return before I shipped the products. This caused a bit of a puzzle for my accountants. In the end they decided that they'd just not book the Kickstarter money as income at all until I shipped each reward.

It's good that the author mentions factory financing. It's not something I'd thought of before, but it ended up being a crucial part of my project's success. My CM initially gave me the standard 50% upfront/50% ex works. As the time to ship drew closer, it became clear that cashflow would be very tight. Luckily my CM was very flexible, and agreed to extended terms for the final 25%, which gave me time to sell a few more flashes and cover the last payment. Choose your CM wisely! I'm going to be placing an order for a second batch soon and will be angling for better terms still.

[1] https://www.kickstarter.com/projects/vela/vela-one-the-world...

Re: Kickstarter is Debt

#59

Post by my_username_is_ »

karmacondon wrote: post #7

This article, and it seems the whole blog, is an amazing resource for anyone considering a hardware startup. Very clear and very helpful. The funny thing is that kickstarter's official policy is that they are not a pre-sale platform. But if they were serious about this, they wouldn't let campaigns offer the product being developed as a "reward" in exchange for money. It's like amazon saying that they aren't a book se…

I very much disagree with the idea that you don't have any ethical stipulations if you receive money from a kickstarter campaign.

Although they label things as "donations" and "rewards", it is a de-facto presale platform. If you're going to put a project on there and tell people you'll send them something for giving you money, you're making a promise beyond the words that Kickstarter is using. And while I know that there's a certain amount of risk with any project, you damn sure do have an ethical obligation to do everything in your power to make good on your promise to your early supporters.

Re: Kickstarter is Debt

#60

Post by girmad »

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…

Apple is only issuing debt because all of its cash is overseas. At this point the interest is cheaper than paying US taxes.
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