Status-Q

I remember when my parents got their first credit cards. This new method of paying for things materialised in the UK in the mid-60s, shortly before I did, but they only became widespread in the 70s and 80s, and my childhood was filled with advertisements for them. Anyone else here old enough to remember “Access – your flexible friend”?

American Express was also desperately promoting its alternative charge-card model with advertisements promising the earth. These were nicely satirised by the brilliant team from Not the Nine O’Clock News.

For some reason, it was a very memorable sketch for a young teenage boy, not used to seeing anything like that on British TV at the time!

Two other things, though, made a lasting impression on me at that age:

• The first was a presenter on a humorous BBC radio programme starting a new section with these words: “Credit, of course, is a nice new word for the nasty old situation we used to call debt”.

• The second was a speaker at a youth camp who gave some exceedingly good advice, which I have followed ever since, and strongly recommend to the youth of today: “Never borrow money for anything smaller than a house.” Seriously, I recommend it.

Debt, however, is not always bad. If you’re a business with reasonably predictable future revenues, debt-based financing can be attractive when compared with the alternatives, but in the tech industry of the last couple of decades, it has very seldom been a viable option for small companies and we’ve had to resort to venture capital instead.

But in a fascinating article entitled ‘Debt is coming’, Alex Danco suggests that this may be about to change, and that the trend for technology products and services to move to subscription-based models opens up new ways of financing startups, that may not depend on selling your company’s soul to the VCs.

Here is a widely believed cause-and-effect relationship I bet you’ve never thought to invert before: because most startups fail, therefore equity is the best way to finance them. Have you ever considered: because equity is how we finance startups, therefore most startups fail?

The article’s worth reading in full if you’re at all interested in this area.

Maybe, if I can get over my dislike of subscriptions, I’ll also be able to get over my dislike of debt!

Thanks to Pilgrim Beart and Tim O’Reilly for the link to Alex’s article.