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Comment by ChuckMcM | Hacker News Reader

Interesting pitch, but it is confusing to me. How is this different than just getting a small business loan / line-of-credit? It seems like most financial institutions can price into that an expected rate of return and price out the loan appropriately. Does it "feel" less bad if you leave someone with worthless equity than a worthless promissory note if the business fails to take off?

Would be interested in reading one of their typical term sheets and comparing it to say a SAFE from YC or a simple business loan.

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Nobody will give you a business loan against a startup company without a stable existing revenue stream unless you provide a personal guarantee with collateral that you personally own.

The difference between a loan and investment is that if your business fails you don't lose your house.

I hear this, but do startups often try?

A pre-revenue biotech startup I worked for had a venture loan from SVB that had some equity-like covenants but was primarily backed by our IP. I don't see why something like that couldn't work with software companies as well if they have IP worth protecting.

How did they get to the point of having IP in the first place? Who paid for that work?

If it was biotech, the answer to that question is probably, "you", nih grants at a university, or an SBIR, from some government entity.

It says how it's different in the TFA.

> An investment from IdVC doesn’t preclude you from selling, but in the event you stay independent, our investment will get paid out as distributions from cashflow over time.

I got that, that is the 'small business loan' part. I would be amazed if it was charitably paid back 1:1 over time, rather there is going to be some sort of baked in interest rate which will compute what it costs to remove the obligation from the business. Is that 5%? 10%? set by market rates? compounded or simple? What percentage of equity does is represent? Does it participate pro-rata in future financings or does it always convert to cash at that point? That is where the term sheet helps as it lays out that stuff.

Looking at it cynically, it could be a great Goldman Sachs instrument - no exit we win! exit we win! But from a founder perspective, it would be helpful to have a couple of worked examples.

I think the expected payback is going to be a large multiple.

The part that's not a small business loan, I'm guessing, is that these are venture capitalists acting on longshots.

5-10% won't let you tolerate any misses.

Or get 50-200% back with a higher bar for entry (already having revenue, only needing 200% investment back out in 2 years)

Which is ironic because they say "Like cement, the cultural foundation for new projects and companies sets early."

It seems the financial terms are clear as cement too. I'm really interested in this model for my business (sounds perfect for where we are) but clarity of terms makes me hesitate.

Why would there be a way to remove the obligation of the investment from the business? They are buying shares, once they buy them, they own them until they decide to sell them.

You would strike a deal of how many dollars per share just like any other investment.

The part that a few people in this thread don't seem to be getting is that distributing money via dividends is something a founder wants to do, not something they are forced to do.

Why? Because the founder gets their percentage of the money!

Normal VCs don't want you to distribute because they only want you to grow. Any money that you have they want you to spend on growth so that you can do a big exit. This is a totally different mindset then making a normal company that just earns money and gives that money to it's owners.

What is a "Goldman Sachs instrument?"

It is a financial product designed by a banker working for Goldman Sachs.

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