Using Debt Like Growth Equity
A VC : Venture Capital and Technology
MARCH 20, 2017
ModCloth effectively treated the debt like growth equity, rather than recognizing the time bomb it could become. When the debt first came due in April 2015, existing ModCloth investors pumped in new equity to, in part, kick repayment down the road for two years. Once the income statement returned to the red, ModCloth again tried raising equity ― but prospective investors cited the debt overhang as their reason for passing on a company whose unit economics were otherwise fundable.