[pdeuchler]

If a 50% drop in expected revenue _growth_ causes you to default on your debt you are either a startup that had trouble raising money, in which case now you know that you do not have a viable business plan, or you are running a completely unsustainable business that only existed because of easy access to cheap debt the past couple of years.

[ttul]

Common misconception. It’s not uncommon for companies to use leverage to fuel growth. High yield venture debt is often tied to growth metrics. It’s not a mistake to operate a company using venture debt. In a highly competitive market, if you don’t lever up, your competitors will eat your market.

[mst]

Something I often explain to customers (shadow.cat is a consultancy so we usually don't arrive until several years into a company's life) is that, yes, they've accumulated a shitload of technical debt, and yes, I get they're embarassed about it, but if you don't cut some corners in the early days your competitors who do will drive you out of business before it ever matters.

Then I politely point out to them that they're still in business, and their codebase is doing something sufficiently useful to customers that it's making enough money to be able to support a budget for us to help, so clearly they did something right and I'm not going to hold against them the choices without which they'd've never become a customer anyway.

(anybody doing similar work please feel free to steal my spiel, it's so nice to get the in-house developers to realise they're not going to be judged because it makes it much easier to get on with the part where you work with them to unfuck the codebase :)

[pdeuchler]

> It’s not uncommon for companies to use leverage to fuel growth. High yield venture debt is often tied to growth metrics.

This is, of course, exactly my point. "High yield venture debt" only exists due to absurdly low interest rates and an abundance of capital being driven out of public markets and into private ones. Now that the free lunch is over do not be surprised that your lenders come calling now that your "high yield" (read: risky) loan is no longer profitable under current market conditions.

> In a highly competitive market, if you don’t lever up, your competitors will eat your market.

I.E. When capital is cheap and abundant it is possible to burn cash on an unsustainable business plan for marketshare, but when the entire market itself rapidly shrinks your business plan is horribly unviable.

[tarsinge]

It’s totally viable to have a no growth business. Trustful clients, steady income, no debts. I’m lucky but for now there is nearly no impact on my web agency. And even if activity dropped to 0 we have cash for a few months to pay salaries. I always aimed for a rock solid balance sheet, and a bailout of our over leveraged competitors would be very unfair.

[TearsInTheRain]

Well you see it was a mistake to lever up because now your company's failed. Bailing out companies that got leveraged up to their eyeballs just rewards companies that take as much risk as possible. Does that sound healthy to you?

[mistermann]

> It’s not uncommon for companies to use leverage to fuel growth.

Seems true.

> High yield venture debt is often tied to growth metrics.

Seems true.

> It’s not a mistake to operate a company using venture debt.

Is this true, or might it be more accurate that particular people, depending on their situation, would like to have us believe it is true?

If a company is operating using venture debt, or operating in any arbitrary fashion for that matter, and then a disruptive incident occurs and the company's finances are insufficient to sustain itself and must shut down (in turn losing at least a significant portion of the initial investment), is it accurate to say that "no mistakes have been made"?

If the business in question then goes hat in hand to the public (whose constituents are often lectured to "save money for a rainy day", and who also have serious financial issues of their own), asking for a bailout with this story as a justification of sorts, does this not seem a little bit absurd?

Am I looking at this the wrong way, because it kind of seems counter-intuitive to me?

> In a highly competitive market, if you don’t lever up, your competitors will eat your market.

Seems true.

[edanm]

> or you are running a completely unsustainable business that only existed because of easy access to cheap debt the past couple of years.

Or you planned for revenue growth by doing things like buying extra equipment, hiring more workers, increasing office space, etc.

When operating a business, you have to plan for growth, or lack of growth, or even for revenue to fall. And your planning often costs money, or commitments to pay money. If reality suddenly doesn't match your planning, then you are in trouble.

And I totally don't get why people are so negative on debt. If I'm running a relatively new company, and realize I have a good product that is going to increase in demand next year, but I don't have the money to build out a new factory - I can get a loan. If I happen to be, say, Apple, I don't necessarily need a loan - I can finance it myself using cash reserves from previous years. Why is it better to live in a world where the only companies who can build up for future growth like this are huge companies like Apple?

[pdeuchler]

Uhhhhhh, are you talking about bank term loans? Bank term loans have repayment periods over decades (usually), and use the physical assets as collateral. Not what OP is talking about.

[goatherders]

Not true at all