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Comment by vm | Hacker News Reader

No no no. Debt is not universally better. Debt can wipe out companies. It requires payments that equity does not. Miss one payment and you're in default. It's extremely risky for companies that are young and volatile.

Debt vs. equity is always a case-by-case situation. Debt is cheaper but comes with strings attached. Equity is pricey but more flexible.

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But it isn't in your creditor's interest that you go bankrupt either.

This. Being able to get debt should, in general, be a good indicator that your company might actually be valuable.

Not really. The easiest way to get a loan is to start a fast food franchise or build houses. Banks don't do innovation.

It is if they lose faith in your ability to make a profit. Better to force you into bankruptcy and auction the IP and tangible assets than let you ride it down to zero.

Bankruptcy can definitely be in the creditor's interest. It can take possession of the company's assets, and then sell them off to recover principal (in addition to many other outcomes - bankruptcy is complicated).

Debt incentives do not align with equity.

I don't equity investments align in interest either - among Founders, angels, VCs, PEs and public shares.

There's enough material to backup the struggle between any of these entities

I don't think debt would be worse for startups though. It's unlikely debt would wipe out a startup unless it continually finances through debt over a long period of time or just has really unfavorable debt terms (which wouldn't make sense for the debt issuer either).

The problem is getting debt financing...but I would imagine debt financing would make sense for 99.99% of startups.

> Miss one payment and you're in default.

I mean this is just factually wrong. Sure you'll rack up fees, it gets expensive quick, and there's generally no good reason to do it, but you're not in default until you're in default - and missing 1 payment is not going to do that.

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