[twelve40]

VC $ works the same as short-term bank loans? how? in any case, all of this interest rate "math" the parent wrote is only applicable to short-term loans. This is math for a shawarma stand, not a company that raised 300 mil of non-borrowed money.

[lmeyerov]

The interesting difference, and current problem, is VCs expect raised funds to be spent as burn on hiring more people despite existing people already being paid from VC capital instead of revenue. And they expect that to keep happening: each next round will be bigger and cover even bigger payrolls. If the next round doesn't happen, layoffs, and if flat (ex: bc markups are down 3x), dilution & quitting by the best - either way, downward spiral that is hard to return from. The gamble is nothing breaks while this happens -- doubling down the bet.

With interest loans based on revenue, it's fine to stop whenever bc you have revenue for (most of) payroll.

Operationally, that expectation is now worse than interest. In the good times, it was free money for free growth, but with fewer and marked down rounds, a killer. Some founders value efficiency, which avoids this issue, but in the last few years, VC boards certainly were encouraging inefficient growth, meaning bad times for such VC-dependent companies.

[lovich]

aren't these companies continually raising funds to stay in operation, which would mean they would be looking out as far as their next anticipated investment and those rates? Looking up CircleCI in particular on crunchbase it looks like they've raised an investment in all but 2 years of the last decade. Last one was two years ago and presumably they'll need more soon if they aren't profitable.

[twelve40]

> anticipated investment and those rates

Sorry, what rates are you talking about? VC investment doesn't have any rates, at least not to the startup.

[lovich]

VC funds are not directly controlled by the federal interest rates but their ability to get _their_ investors to invest in the VC is affected. VC funds tend to get less investment when the return on cash becomes much higher. If the VCs cant get enough funding then they are going to turn around to their investments and either whip them to make more money or start giving worse terms to companies looking to raise another round