Debt, equity, and a third thing that might work better – Seth Godin



From SETH GODIN

If your business needs money, it seems as though you have two choices:

  • Get a loan from a bank
  • Raise equity from an investor, giving up part of your company in exchange

Banks are everywhere, so the idea that they can loan us money seems obvious. And venture capitalists and the companies they fund are in the news all the time… and making a billion dollars sounds like fun.

Here’s the thing: for most businesses, most of the time, neither is a realistic option.

Banks aren’t in the business of taking risk. Which means that they make boring loans to boring companies for boring purposes. They do everything they can to be riskless. Which means you need to guarantee the loan with your house or with assets worth far more than the loan. Which means that a good idea is not a sufficiently good reason for a loan.

And equity? Well there are two problems. The first is that the number of investments that professional VCs can make is microscopically small compared to the number of businesses that want them. Go to Seth’s Blog for article
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