When it comes to raising money for startups, debt financing is usually the last thing on a founder’s mind. However, debt either through venture debt or a convertible note is more common than you might think. Especially when founders don’t want to dilute themselves at the early stages of fundraising.
Besides, taking on the right amount of debt capital can give a business the boost it needs to establish a track record to get a better valuation in latter rounds. As such, there are some scenarios where debt financing might be just what your startup needs and here are a few tips to identify when this is the case.
Focus On Providing Financing
If your startup provides financing to others, then you probably won’t want to burn through the equity capital you have raised to provide loans. Instead, a better option is to use debt financing to expand your lending capabilities. This approach is not as unique, as companies such as Opendoor, SoFi, and Affirm have relied on this as a way to get the money they need to grow.
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