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Bridge Loans

avc.com

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Re: Bridge Loans

#31

Post by alberth »

sixhobbits wrote: post #30

> New investors strengthen the investor syndicate which makes the company more resilient. New investors bring new ideas, new experiences, and new sources of funding to the business. uh, citation needed? Investors aren't meant to be there to bring 'ideas and experiences', and adding new ones to a company that isn't doing well feels like it would just add more tension and disagreement when what is probably needed is a…

Given that Fred Wilson (the blog author) is a renowned VC with 30+ years experience and dozens of famous investments … him saying it is the citation you’re looking for.

It’d be like you asking for a citation when Michael Jordan makes a comment about the game of basketball :)

Re: Bridge Loans

#32

Post by smartbettor »

keithwhor wrote: post #29

Yikes. I feel like this is a smart way to bury the lede; > A very important consideration in structuring a bridge loan is what happens if the company is sold when the note is outstanding. […] I like somewhere between 2x and 3x depending on the circumstances. Slippery slope; Fred just gave ammunition to a whole bunch of firms to start negotiating liquidation preferences on term sheets, for which the “standard” has bee…

prices have been going up for years. the standard is gone.

Re: Bridge Loans

#33

Post by andrewacove »

asah wrote: post #19

The comments here seem to forget that financing is ESSENTIAL to startups - even profitable ones. As a reminder, 99% of the marketcap (value) of a startup is its growth, not its present size/revenue/etc. By mathematical definition, a startup cannot fund fast-enough growth on current profits and therefore requires financing and a lot of it. You finance a startup with a mix of VC and debt. As the business becomes less s…

It's very difficult to get debt financing if you're running out of cash, and this article is focused on companies that are (at risk of) running out of cash.

Re: Bridge Loans

#34

Post by icedchai »

The last bridge loan I'm personally familiar with was a bridge to a fire sale about a year later. The company was sole for pennies on the dollar, screwing all the original preferred investors (myself include.)

Re: Bridge Loans

#35

Post by gumby »

yieldcrv wrote: post #20

Protip: You don't need to be a VC to offer onerous debt financing. I know individuals that have made a killing offering loans to distressed publicly traded companies. They typically convert to MASSIVELY larger amounts of equity and dump that. Resulting in a death spiral for the company (unless the company's laughable prospects actually panned out), or result in a lien on assets that are also far greater in value than…

This is te standard PE playbook.

Re: Bridge Loans

#36

Post by sbierwagen »

sixhobbits wrote: post #30

> New investors strengthen the investor syndicate which makes the company more resilient. New investors bring new ideas, new experiences, and new sources of funding to the business. uh, citation needed? Investors aren't meant to be there to bring 'ideas and experiences', and adding new ones to a company that isn't doing well feels like it would just add more tension and disagreement when what is probably needed is a…

Fred is a VC. VCs don't want to be just a dumb pipe of money, competing on terms, they want to be management coaches and compete on unmeasurable intangibles-- in exchange for more of the company at a lower price.

Re: Bridge Loans

#37

Post by fairity »

keithwhor wrote: post #29

Yikes. I feel like this is a smart way to bury the lede; > A very important consideration in structuring a bridge loan is what happens if the company is sold when the note is outstanding. […] I like somewhere between 2x and 3x depending on the circumstances. Slippery slope; Fred just gave ammunition to a whole bunch of firms to start negotiating liquidation preferences on term sheets, for which the “standard” has bee…

The standard is 1x for regular financings, but bridge rounds tend to be more distressed, so I wouldn’t be surprised if market is more like 2x.

Re: Bridge Loans

#38

Post by jonathankoren »

alberth wrote: post #31
sixhobbits wrote: post #30

> New investors strengthen the investor syndicate which makes the company more resilient. New investors bring new ideas, new experiences, and new sources of funding to the business. uh, citation needed? Investors aren't meant to be there to bring 'ideas and experiences', and adding new ones to a company that isn't doing well feels like it would just add more tension and disagreement when what is probably needed is a…

Given that Fred Wilson (the blog author) is a renowned VC with 30+ years experience and dozens of famous investments … him saying it is the citation you’re looking for. It’d be like you asking for a citation when Michael Jordan makes a comment about the game of basketball :)

Fred Wilson is also financially incentivized to make you believe that he has your best interests at heart. This is no different from a monorail salesman telling you need a monorail, because he sold them to Brockway, Ogdenville, and North Haverbrook, and by gum! That put them on the map!

I'd rather hear from the people that took the investment, especially the ones that crashed and burned.

Re: Bridge Loans

#39

Post by robocat »

asah wrote: post #19

The comments here seem to forget that financing is ESSENTIAL to startups - even profitable ones. As a reminder, 99% of the marketcap (value) of a startup is its growth, not its present size/revenue/etc. By mathematical definition, a startup cannot fund fast-enough growth on current profits and therefore requires financing and a lot of it. You finance a startup with a mix of VC and debt. As the business becomes less s…

> By mathematical definition, a startup cannot fund fast-enough growth on current profits and therefore requires financing and a lot of it.

Untrue.

Sell enough annual SaaS plans and you get cash before your future costs - perhaps enough to self-fund growth depending on specifics for your SaaS. Skip to 14 minutes in of https://m.youtube.com/watch?v=otbnC2zE2rw for explanation.

Jason’s explaination for his own business: income from signups is structured so they get more money per month per user than their Customer Acquisition Cost “literally operate with an infinite marketing budget” - i.e. constraint isn’t marketing growth costs but their other business constraints. See from 15:45 to 16:30 of the video where he is talking about some figures for the business he owned at the time.

Re: Bridge Loans

#40

Post by alberth »

jonathankoren wrote: post #38
alberth wrote: post #31

Earlier quoted context omitted.

Given that Fred Wilson (the blog author) is a renowned VC with 30+ years experience and dozens of famous investments … him saying it is the citation you’re looking for. It’d be like you asking for a citation when Michael Jordan makes a comment about the game of basketball :)

Fred Wilson is also financially incentivized to make you believe that he has your best interests at heart. This is no different from a monorail salesman telling you need a monorail, because he sold them to Brockway, Ogdenville, and North Haverbrook, and by gum! That put them on the map! I'd rather hear from the people that took the investment, especially the ones that crashed and burned.

What you're saying doesn't even make sense.

Fred is explicitly stating that it's good for a business to get new investors, and to not just keep taking money from the existing investors. That's the exact opposite of what a typical VC would tell you. When new investors come into a company, the existing VC gets diluted.

How is this advice not in the founders interest?

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