Founders Finance Like Dentists
Ryan Frederick | November 30th, 2023 | Dublin, OH
Suppose you go to school to be a dentist or a veterinarian, as another example, when you graduate. In that case, banks will finance the office and equipment needed to serve customers, spreading the financial investment over time and allowing for business building to occur as the equipment is being paid for. Most founders starting technology-based companies can only get traditional bank financing if there is equipment to be leveraged as collateral. However, this doesn’t mean that technology startup founders shouldn’t consider and pursue financing to build their product, just as dentists finance equipping their practices. A new dentist wouldn’t pay cash for dental equipment even if they could. It makes more sense to conserve the money and to operationalize the equipment expense over time. New dentists also don’t have to give up equity in their practice to finance the tools of the trade. Many technology startup founders shouldn’t either.
Pre-cloud, some technology companies could get equipment financing because they purchased servers and other infrastructure required to operate the business. Those days are mostly gone, of course. However, the advent of machine learning (ML) and artificial intelligence (AI) may resurrect them to a degree as companies use GPUs to power proprietary ML models, it is still going to be rare for an early-stage startup to buy its own GPU even if it is doing proprietary ML.
One of the reasons we provide venture debt financing at AWH is because it allows founders of technology-based products and companies that don’t have any hard assets that can be used as collateral to be able to buy runway to get their business up and running just as dentists can. Founders of technology startups should have the same opportunity to finance their product just as dentists and others get to finance the tools of their trade. The tools of technology founders are different from those of dentists, of course, but no less necessary to a founder executing the product and business. Technology founder tools include cloud and data infrastructure, but more importantly, the skill of people who will design, build, and manage the product. Founder tools are the work product of the people plying their craft to make the product a reality and to evolve it.
Venture debt financing for technology founders and startups doesn’t preclude a company from taking equity investment at any point and, in many cases, unlocks the potential for venture equity investment as the company is going to have or be closer to having product market fit as the result of the venture debt financing to get the product built and the company’s runway extended. More technology startup founders should be considering financing their product development just as dentists finance becoming operational to serve patients.