On November 15th, FastPay hosted a panel on the topic of Debt vs Equity, moderated by FastPay’s own, David Bensimon. In partnership with Gunderson Dettmer, the panel featured four industry experts, and the room was filled with thought leaders looking to gain insights on how to grow their companies and network with peers over breakfast. Below is a quick summary of the event:
Debt vs Equity Highlights
- Take debt when you can
- Raise equity – two schools of thought:
- Be careful not to raise too much too quickly
- Raise money now, because you don’t know when the bubble is going to burst
Debt for working capital. Equity for growth.
Lori Murphree, of Diamond Capital Advisors, shared that “debt is cheaper at the end of the day, most people don’t realize that. If you’re going to sell your company for hundreds of millions of dollars, do the math!” She also mentioned, “you always want an AR lender that you can use for working capital. If you are going to raise equity, try to raise some debt to go with it.”
17 percent of $100MM > 100 percent of $1MM
There are things to be careful of when taking on Venture Capital, including being aware of how much ownership of your company you are willing to give up. Laurent Grill, of Luma Launch, said if you partner with the right VC and have a good growth plan, the goal of taking on VC money is to grow rapidly. As long as you don’t mind giving up control, “17 percent of a hundred million dollar company is better than 100 percent of a million dollar company.”
Venture funds -> Revenue growth
Matthew Levin, founder of automotive publishing company Donut Media, suggested, “have a plan in place before taking on investment… [As a content company] we have faced the unique challenge of balancing both growing our audience and financing the business.” He advised founders to think about: “the right time to take on equity and how that equity returns audience size that will ultimately turn into revenue.”
Tips to raise money
Founders should be networking with potential investors months before they are actually looking for funding. Dulari Amin, of Synergy Ventures, gave insights on what founders should do. “Talk to your mentors, professors, your army, anyone who has good connections and can bolster your credibility factor and get you in the door with a known VC in town. They can help introduce you to potential investors.”
Stay tuned for more tips from FastPay!