We launched back in March with an expensive hardware product. For the first wave of manufacturing we needed some financial outsource so we got a 300K USD loan from an individual. We have had a good amount of sales, and now in order to speed up the process of manufacturing and scale we need a big cheque from the VC's. Now the question is, will that loan be a negative point for us? Or they will look at the process and the time to cashflow-positivity? We need to return the loan 6 months from now.
It's certainly not unusual to see debt on the balance sheet when we look at opportunities. I wouldn't let it hold up your process of trying to find additional new investors, as it can usually be worked around to all parties satisfaction. Having said that - a specific answer to your question would depend on a number of things, including the payback terms, cash on the balance sheet, amount you intend to raise, strength of the underlying business etc. VC's will not fund you $500K just to have $300K walk out the door in 6 months for example. Have you considered having your debt holder convert to equity along with the new investors?
The short answer is NO. The loan, depending on the structure (was it equity or straight & debt) will not make investors jump. You basically raised a seed round for a lack of better terms. In fact if it is not equity, the VC's will be even happier. What they will do is look into the run rate and burn rate to measure how that $300k effects the bottom line and growth rate.
The loan does impact the valuation of the entity; however, it does not stop the conversation with a potential investor. If the Company can cash flow the money to pay the debt and continue to build enterprise value at the same time, an investor will remain interested.
I have seen entities attempt to raise money just to pay off past debts and this is not attractive to an investor. Make sure you are building a company with value.
Feel free to schedule a call if you would like to discuss further.
