Weighted Average Cost of Capital

Weighted Average Cost of Capital

In this episode:

** The best way to raise money is to sell something. ** Debt is cheaper than equity. ** It's become common to have a cycle of cap raises. ** They never look at organic revenue and only focus on the raise. ** I want to explain the concept that debt is cheaper than equity. ** Debt is the first thing that has to be paid back. ** Equity stake holders are bottom rung as bond or debt holders are paid first. ** Once you are in revenue debt becomes an option. ** Let me paint a picture of debt vs. equity. ** You are wrong if you look at the equity side as just getting money. ** What debt doesn't give you are experts helping build your business. ** For most companies, it is a mix of debt and equity. ** If you are pre-revenue and have to do multiple raises, each has a different valuation. ** You have more options if you can get to an mvp and pre-sell products. ** This showcases the conversation we have with some of our members. ** Don't take on personal debt, keep it in the corporation. ** Some people feel equity is less risky but that is not my view. ** Sometimes you take out more than you need with an equity play. ** Some people's whole business model is to raise money. ** Investors should bring more to the table than just money. ** A lot of people don't vet investors. ** Is it truly risk capital? ** The investor base is a key stakeholder, and they should be relied on. ** They know they need funding but don't specifically know what to do with it. ** It's all about having the right conversations. ** If the investors aren't asking hard questions, they are not really interested. ** T's dinner with a potential investor. ** It should be an uncomfortable conversation. Money can wreck relationships. ** The chasm between design and revenue is huge. ** You must prove to investors that you are an expert about your business. ** There is a cost in time and energy in going after grants or dealing with investors.