Debt is how startups die, indexed and explained.
Venture debt, revenue-based financing, convertibles, SAFEs, and the founder personal guarantee — the clauses that quietly trigger collapse, written for founders before they sign.
Founder Personal Guarantee
You sign personally for the company's debt. If the company can't pay, the bank comes after your house, your savings, and your future income — for life.
Material Adverse Change (MAC) Clause
The lender can declare default — accelerate the loan and demand immediate repayment — if anything happens to your business they decide is 'materially adverse.' That definition is theirs, not yours.
Revenue-Based Financing With No Total Cap
Revenue-based financing takes a percentage of monthly revenue until you've repaid the loan plus a multiple. If there's no cap on total repayment, a great month for your business is a great month for the lender — forever.
Security Interest in Intellectual Property
The lender takes a lien — a security interest — on your IP. If you default, they can seize the patents, trademarks, source code, and customer contracts that ARE the company.
Financial Covenants (Revenue / EBITDA / Liquidity)
You must maintain specific financial metrics — minimum revenue, minimum cash on hand, maximum burn — every quarter, or you're in default. One missed quarter and the lender can call the loan.
Post-Money SAFE Stacking
Post-money SAFEs lock in a fixed percentage of the company at conversion — meaning every SAFE you sign locks in MORE dilution than you think, because each subsequent SAFE expands the SAFE pool the prior ones convert against. Founders routinely raise '20% in SAFEs' and end up giving up 35–40%.
Springing Recourse on Default
The loan is non-recourse — until something goes wrong. On certain trigger events, recourse 'springs' to the founders or the parent company personally, often for the full loan amount.
MFN Cascade in Convertible Notes
A 'Most Favored Nation' clause says: if you give any future investor better terms, those better terms automatically apply to me too. One investor with MFN forces every future investor to accept the worst term you've ever offered.
Warrant Coverage Above 10%
The lender takes warrants — the right to buy your equity at a fixed price — alongside the loan. Standard is 1–5% of loan principal in warrant value. Above 10%, the lender is taking equity-investor-level upside on a debt-investor-level risk profile.
Valuation Cap with No Floor on Next Round
Some SAFEs convert at the valuation cap OR a discount to the next round, whichever is better for the investor — with NO floor protecting founders. If you do a down round, the SAFE converts at a fraction of the cap and dilution explodes.
Prepayment Penalty on Debt Financing
If you raise equity later or have a great quarter and want to pay off the loan early, you owe a penalty — sometimes the FULL repayment amount, even if you've only had the money for three months.