How an offer to sell our business inspired us to take on $17M in debt
wistia.comOne thing I wonder about starting your own business like this is if you do sell .... if there's a bit of a sense of loss. Things change forever, you were successful, but it's fundamentally a different game / company now.
Yes. But you’re free.
Yes. Also without any immediate directions.
Add to it Idle mind being devil's workshop . Add to it some handsome cash you might have got and there's a recipe for a good potential destruction.
Great read. Question, since Wistia took capital from private equity (Accel-KKR). These guys typically invest in equity-like instruments. Is there PIK (payment-in-kind) on the debt or does it have equity like upside? PIK debt can have ~7-15% interest where maybe half or all of the interest accrues in the form of more debt which in turn has PIK. Accel-KKR might be looking at a nice ~12% return (IRR) with relatively low risk. Note: figures above are made up.
Thanks for reading! We can't disclose the exact terms of the debt, but it's fairly traditional. The interest rate is higher than if we had years of profitability to show -- makes sense as that's the risk the lender is taking. Also, the team that did this is separate from their PE side. Slightly more details are here in this WSJ article: https://www.wsj.com/articles/ditch-the-venture-model-say-fou...
I'm wondering what happens to the cap table now. Lets say after many raises the investors own 50% of the company and 50% is founders and employees. If the company borrows money to buy out the investors, does that mean the 50% owned by founders/employees turn into 100%? I'm thinking the valuation would still remain the same, which means suddenly their value goes up significantly.
the valuation would have to drop to account for the debt the company took on.
What would the financial implications be if founders bought out investors like this, but then raised a larger round at a higher valuation? Does that happen? I never even considered taking on debt to buy out investors - but after seeing this it seems like a lot of high growth startup founders could position themselves well by doing so.
Does it say how much was offered to buy the business?
No, but I'm going to guess right around the 17M, I guess it depends on how much the founders owned and whether they "cashed out" or just made their shares go poof.