<story><title>Kickstarter is Debt</title><url>https://blog.bolt.io/kickstarter-is-debt-e3b6a70ce180</url></story><parent_chain><item><author>bhouston</author><text>Just to be clear though debt is actually a preferred type of financing because it is one of the cheapest forms.&lt;p&gt;A venture investor is expecting a 10x return on their investment.  That means they are expected a much greater realized interest rate than debt - money that effective comes out of the pockets of the business owners.&lt;p&gt;If you can get debt, if is often preferred if you can figure out how to manage the default risk.&lt;p&gt;You do not give up equity (which could be worth a massive amount), rather you only have to pay back the debt at some future time with some much minor interest.&lt;p&gt;Also interest is often tax deductable, thus debt has further tax advantages.&lt;p&gt;One Nobel winning economic theory leads to an optimal capital structure of 100% debt: &lt;a href=&quot;https:&amp;#x2F;&amp;#x2F;en.wikipedia.org&amp;#x2F;wiki&amp;#x2F;Modigliani%E2%80%93Miller_theorem&quot; rel=&quot;nofollow&quot;&gt;https:&amp;#x2F;&amp;#x2F;en.wikipedia.org&amp;#x2F;wiki&amp;#x2F;Modigliani%E2%80%93Miller_theo...&lt;/a&gt;&lt;p&gt;Example: Apple is buying back shares (the opposite of equity funding), while issuing massive amounts of debt.</text></item></parent_chain><comment><author>anifow</author><text>Words like &amp;quot;debt&amp;quot; can be tricky to pin down, which is why we have an accounting profession who&amp;#x27;s job it is to establish a cohesive and consistent language system with specific meanings.&lt;p&gt;Kickstarter money represents both revenue and a liability for the company that is doing the project. There are many types of liabilities which are not exactly debt in the sense that we think about a bank loan (which is also a liability). The thing that all liabilities have in common is that they represent an obligation of the company which could require them to spend money or other assets to fulfill. This does not mean they have to satisfy the liability, it just means that there is a financial justification for any work they do relating to that.&lt;p&gt;I am sure the accounting profession is continually being tested with new business models and trying to capture the financial reality for people who are playing very different games in the world of capital.</text></comment>
<story><title>Kickstarter is Debt</title><url>https://blog.bolt.io/kickstarter-is-debt-e3b6a70ce180</url></story><parent_chain><item><author>bhouston</author><text>Just to be clear though debt is actually a preferred type of financing because it is one of the cheapest forms.&lt;p&gt;A venture investor is expecting a 10x return on their investment.  That means they are expected a much greater realized interest rate than debt - money that effective comes out of the pockets of the business owners.&lt;p&gt;If you can get debt, if is often preferred if you can figure out how to manage the default risk.&lt;p&gt;You do not give up equity (which could be worth a massive amount), rather you only have to pay back the debt at some future time with some much minor interest.&lt;p&gt;Also interest is often tax deductable, thus debt has further tax advantages.&lt;p&gt;One Nobel winning economic theory leads to an optimal capital structure of 100% debt: &lt;a href=&quot;https:&amp;#x2F;&amp;#x2F;en.wikipedia.org&amp;#x2F;wiki&amp;#x2F;Modigliani%E2%80%93Miller_theorem&quot; rel=&quot;nofollow&quot;&gt;https:&amp;#x2F;&amp;#x2F;en.wikipedia.org&amp;#x2F;wiki&amp;#x2F;Modigliani%E2%80%93Miller_theo...&lt;/a&gt;&lt;p&gt;Example: Apple is buying back shares (the opposite of equity funding), while issuing massive amounts of debt.</text></item></parent_chain><comment><author>robzyb</author><text>&amp;gt; Just to be clear though debt is actually a preferred type of financing because it is one of the cheapest forms.&lt;p&gt;Honestly? That statement seems a tad simplistic to me. Especially in the context of startups.</text></comment>