Founders often see venture debt as cheap runway extension. However, it introduces restrictive covenants and a fixed repayment schedule, making it harder to pivot when necessary. This fragility is a high price to pay, as debt holders' incentives are misaligned with long-term equity growth.

A critical, often overlooked risk when investing in secondary market SPVs is whether the original share owner retains the right to pledge the underlying stock as collateral for personal loans. This could jeopardize the SPV's assets, making it a crucial diligence checkpoint.

In the sale of Wingstop, Antonio Swad's $12 million seller-financed note was contingent on "available cash flow." The buyers exploited this term by spending all revenue on bonuses and expansion, ensuring no cash was ever "available" and legally withholding payments for years.

When considering debt against a signed contract, operate under the assumption that the contract will not come through. This prevents piling financial risk on top of an already risky situation. Only proceed if your business can sustain the debt repayment without that expected revenue, as a signed contract is not guaranteed cash.

Most founders don't realize the standard "any lawful purpose" clause in their corporate charter creates a fiduciary duty to maximize shareholder value. This seemingly innocuous phrase can legally compel a founder to accept a buyout from an undesirable acquirer, even with founder control.

Despite being a co-founder of Plaid, William Hockey had minimal liquidity when starting his next company. He funded it by taking a high-interest loan against his private Plaid stock at a 5% LTV, pledging over a billion dollars for $70 million and facing multiple margin calls.

When considering debt, the most critical due diligence is not on deal terms but on the lender's character. Investigate how they have treated portfolio companies during challenging times. Partnering with a lender who will "blow you up" at the first sign of trouble is a catastrophic risk.

The desire to avoid awkward conversations with business partners, especially friends, leads to vague agreements. This inevitably results in costly and lengthy lawsuits later when stakes are high. Front-load the discomfort of detailed contracts to save millions and years of your life.

After Citibank accidentally sent $900 million to Revlon's lenders, a new clause called the "erroneous payment deal term" emerged. This term is now in 90% of credit deals, illustrating how a single, high-profile operational failure can rapidly create a new, non-negotiable market standard for risk mitigation.