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Comment by renewiltord | Hacker News Reader

What does leverage mean here?

I assume it means something more like burn rate and product roadmap "debt" leverage than the normal technical financial meaning.

It's easy to get yourself as a founder into a situation where you're trading fundamentals for next-round narrative, and a lot of times that's that can be the deathknell.

The leverage is the difference between valuation at most recent round and what a more boring company performing the same role in the market would have as a public market cap.

The difference between those two values represents a gap that has to be closed before you're on steady ground, and the gap widens at a higher-than-normal rate because of the growth expectations of the VC money.

Anyway, that's what it looks like to this complete outsider. Companies full of very capable people, pushed to do desperate things, and to do those things quickly. And, like the churn of leveraged Wall Street finance, there are plenty of people who live for the froth of it all.

Debt.

Right, that's the usual meaning, but it's quite unusual for software companies to be debt financed, isn't it? SaaS companies usually go the venture route AFAIK.

Leverage is probably the wrong choice of word, but VC's growth expectations make your average loan shark's interest rates look downright reasonable.

Leverage is a fine choice of words. In financial terms, debt and equity are not that different. Particularly VC equity, which can have some debt-like qualities to it (liquidation preferences, etc.).

Also, many startup investments use debt instruments like convertible notes instead of direct equity purchases.

Yep. If you have traditional debt and you miss your numbers, the banks will often have rights to get significant equity and force a change in leadership. If you have VC equity and you miss your numbers, you'll have been encouraged to be at a burn rate that forces you to raise a down round sooner rather than later, and at that point your existing VCs will get significant additional equity and perhaps even force a change in leadership due the terms of those agreements - and they might even be the sharks offering you that down round.

There's no free lunch, but taking investment can let you achieve great things and build incredible communities. Just make sure you talk with founder/banker/lawyer friends who have seen the dark side of things, and use their experiences as armor.

The definition of leverage is the ratio of a company's debt to its equity. Being pressured to grow too fast by your investors because their model is for every invetment to either go light speed or bust is just a different thing. That is the source of the confusion.

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