Viaplay’s announced pay-to-play recapitalization plan highlights a few lessons that are also applicable for startups.
- The Golden Rule (Whoever has the gold makes the rules) is especially important when a company is about to run out of money, is about to break loan covenants or cannot pay its debt.
- Debt gives leverage in both directions. When things are not going well, it amplifies the problems and creates instability for the company and shareholders. In addition to the fact that interest payments and amortization are creating a cash outflow.
- Equity, as a comparision, is stable and don’t create a cash outflow.
- Taking on significant operational costs and liabilities without fully securing funding creates a big dillution risk for shareholders that cannot or are unwilling to provide additional equity funding if needed.
