It seems like it's just a really, really, really expensive loan. They make it sound nice with their anti-VC, pro-founder marketing angle. But at the end of the day, they are charging you 3x what you're borrowing.
Why pay for a loan with equity when you can pay cash? The interest rate on equity payment is exponentially higher than it is for cash.
Plus, if you already have attractive traction, why do you need the "premium features" a VC offers versus a bank which are extra experience, some networking effects, and maybe some insider info on acquisition opportunities? So you can be forced into expedited aggressive growth and turn into WeWork or make less money if the company is acquired? No thanks, the business is already proven and working!
Traction for VC money makes no sense to me.
...Unless you secretly have ZERO intention of ever selling and just want to pocket some play money for the business.
3X in 7 years implies a yield-to-maturity of 17%. Why would any company pay more than three times the cost of capital they can get from much larger, more liquid, and established Wall Street financing?
[1] https://us.spindices.com/indices/fixed-income/sp-lsta-us-lev...
Personally I'd be really excited to see better loans being offered to startups, but this isn't it.
EDIT: Also you're assuming a 7 year payback period, and I would guess it's a lot shorter than that for the average indie VC customer.
This would be very attractive to someone who wants to grow their business without taking (more) personal risk than they have already.
Now I'm sure they're not using exactly the same definition. Plus we have to take into account recovery rates. But the point is that this VC program almost certainly is not funding the "average startup". To achieve those low levels of default, their investment pool has to be significantly safer and more stable than the typical Valley startup.
So either their typical investment is safer in obvious ways, like interest coverage and EBITDA multiples. In which case they should be able to access traditional credit markets at much more favorable rates. Or the VCs in question have a unique ability to identify sure bets in opaque ways. Ways that other investors just can't see. In which case the secret sauce isn't the funding structure, but the preternatural giftedness of the firm's general partners.
(Or there's a third option, which is that the fund's track record has just represented a string of good luck. They've been fooled by randomness and future returns will not live up to past history.)
After experiencing it myself, I think that the push to grow big is a very big deterrent for me to take on VC money. The lifestyle is just not worth it.
Bootstrapping a company from the ground up works if you have the necessary skills and idea, but some ideas need access to capital, especially if they are operationally intensive. So I could see this model being pretty attractive in those situations.