Idea · carried by 1 source
Capital Structure Must Fit the Business Model
The venture capital model only makes sense for a specific class of businesses: those that can ingest massive capital and consistently compound it. Most companies should pick a capital structure that matches their actual margin profile and growth trajectory, not the one that's culturally prestigious.
Where it comes from
William Hockey, explaining how to think about funding, in highlights/william-hockey-bet-on-yourself (~53:00): “How am I like realistically — what does my margin profile look like? What is my revenue growth over time? And how should I find a capital structure that matches that?”
How it works
- The VC model's hidden requirement: “The venture model only works if you can grow above 30% off of a billion, two billion-dollar base.” Going from $0 to $100M in three years is a different game from growing a $1B revenue base at 30%+.
- The ATM model: “The venture model is built off a fact of you can make a company like an ATM, which is you put in a dollar, you get a dollar 30 back. That's not the case with most markets.”
- Growth rate vs. ingestible capital: “If you give me like a billion dollars right now, I don't know if I grow like a thousand times faster... And I don't necessarily think I should.” Some businesses “cannot ingest like a huge amount of capital.”
- Honest introspection: “You have to look really intensely at yourself and your business to make sure that works.”
- VC isn't bad — it's just not universal: “I like Plaid would not exist without VCs straight up. I just don't necessarily think like the VC model is perfect for every single type of company.”
Don't default to venture capital because it's the Silicon Valley norm. Analyze your margin profile, growth trajectory, and capital absorption capacity, then choose the structure that fits — even if that means bootstrapping, debt, or a smaller raise.