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Bridge Loans

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Re: Bridge Loans

#41

Post by geoduck14 »

bArray wrote: post #12
djbusby wrote: post #4

Oh, I remember when these were popular for dot-com who just needed to get to the next round. Many did not. And a loan has baggage that equity doesn't. Edit: Bridge loans were also really popular to stretch home buying power in 2006,2007. Hmmm.

> Oh, I remember when these were popular for dot-com who just needed to get to the next round. One of the best skills to learn is when to stop throwing good resources after bad. Sure, maybe you need just a little more to get over the finish line, but more than likely you are just investing more resources into delaying failure. People often bring up Elon Musk and Tesla as a positive example of perseverance, where he w…

>You wait, this bubble is about to pop. Not a great time to have large financial obligations. I suspect this will make 2008 look like nothing

While I agree that a bubble is about to pop - I disagree with comparisons to 2008.

My personal take is that the current recession and impending pop will be for reasons different from 2008 - we have been making different mistakes. I also believe that 2008 was really big and I'm not certain the impending pop will be really big - just kind of big.

Re: Bridge Loans

#42

Post by krisoft »

robocat wrote: post #39
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…

> Sell enough annual SaaS plans and you get cash before your future costs

That might be true if you only need to pay for the operational costs, but someone has to develop that service first, don’t they?

How do you sell annual SaaS plans without spending a huge chunk on development first?

Re: Bridge Loans

#43

Post by mandelbrotwurst »

sbierwagen wrote: post #36
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.

...and on top of that, many founders do want this for good reason! Even with "laser vision" with respect to the future of your product, it's likely that you'll benefit from advice from someone with decades of experience.

Re: Bridge Loans

#44

Post by jiveturkey »

alberth wrote: post #40
jonathankoren wrote: post #38

Earlier quoted context omitted.

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?

dilution is good for you

Re: Bridge Loans

#45

Post by com2kid »

Kon-Peki wrote: post #28
com2kid wrote: post #17

Earlier quoted context omitted.

> You wait, this bubble is about to pop. Not a great time to have large financial obligations. The people buying these houses have good financial means, when I bought in 2021 the bank looked through all my finances in depth, and they were super conservative about everything. For example, I own an existing townhome, before agreeing to give me a new mortgage, the bank made me show a signed contract with a tenant for my…

After every crash, people make fun of all the folks that said "this time is different". Maybe that will happen again. And maybe not - or maybe there is no crash at all. I, for one, am truly perplexed. Some things look awful and some things look great. If there is a crash, perhaps it will provide clarity so we can look back and say "it wasn't any different this time".

The last bubble was obscene. 5:00 news talking about how many houses you should buy. This time around everyone who's buying is either paying cash or has had their income verified as being a large multiple of their loan amount.

A lot of tech stocks had a huge explosion in value and I've seen a lot of people locally sell off and just pay the whole house off at once. They aren't cash flow rich but $800k down on a 1.5 million house puts their mortgage payments at a reasonable level for a couple earning 300k+ a year.

I live in a state with all public records and it's very easy to just take a look at house sales and find out who bought them. Basically people who work at companies that had large increases in stock value.

Re: Bridge Loans

#46

Post by jiveturkey »

icedchai wrote: post #34

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.)

as a preferred investor, how does this “screw” you? even in a situation where the debt is senior, in the VC game it’s generally better to shoot for the moon than to cut your losses. this is simply how the game is played.

Re: Bridge Loans

#47

Post by 1123581321 »

alberth wrote: post #24
icelancer wrote: post #21

My small business (not really a startup) has used bridge loans responsibly and very effectively. One area where they're quite useful and common are when you have inventory you want to finance, often in a burst or when a sudden demand shock hits and speed is of the essence. (We currently have a large rotating LOC with a bank, but this is not always practical when you're a startup/small business getting going) Paying t…

Maybe I’m misunderstanding but what you’re describing sounds a lot like a “credit line” to address cash flow issues. But what Fred is describing is financing to bridge to either a liquidation event or another around of funding.

Bridge loans are able to be underwritten at better speed/size/rates than credit lines, all else equal. That’s not taking away from your main point about the article.

Re: Bridge Loans

#48

Post by icelancer »

alberth wrote: post #24
icelancer wrote: post #21

My small business (not really a startup) has used bridge loans responsibly and very effectively. One area where they're quite useful and common are when you have inventory you want to finance, often in a burst or when a sudden demand shock hits and speed is of the essence. (We currently have a large rotating LOC with a bank, but this is not always practical when you're a startup/small business getting going) Paying t…

Maybe I’m misunderstanding but what you’re describing sounds a lot like a “credit line” to address cash flow issues. But what Fred is describing is financing to bridge to either a liquidation event or another around of funding.

We have a credit line now, but often times if you're a new-ish business, banks aren't too keen on giving you one (especially if you are cashflow negative). So sometimes you have to go to places like Kabbage or other pseudo-payroll lender type places who charge insane APRs for short-term bridge financing.

Functions pretty similarly, except one is a reputable business (banks... well, kinda reputable) and the bridge loan shops tend to be pretty maligned (and often reasonably so).

Re: Bridge Loans

#49

Post by icelancer »

1123581321 wrote: post #47
alberth wrote: post #24

Earlier quoted context omitted.

Maybe I’m misunderstanding but what you’re describing sounds a lot like a “credit line” to address cash flow issues. But what Fred is describing is financing to bridge to either a liquidation event or another around of funding.

Bridge loans are able to be underwritten at better speed/size/rates than credit lines, all else equal. That’s not taking away from your main point about the article.

Yeah, this is the main thing for sure. Not rates in my experience, but speed, yes.

Re: Bridge Loans

#50

Post by alberth »

jiveturkey wrote: post #44
alberth wrote: post #40

Earlier quoted context omitted.

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?

dilution is good for you

How is being diluted good for an investor?

If a VC went from owning 20% of a company to now own 10% - how is that good for the VC?

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