It is good to know that there are still smart, rather than merely cunning, people in the finance world.
And Gene Lee, Managing Director of Cove Point Holdings, a Family Office, describes my views precisely in an interesting article published by Axial Market. Specifically, he emphasizes how financial debt in a smaller middle-market business can be very risky and limit the operating flexibility and growth prospects of a company.
We don’t believe that it makes sense to compound the operating risk of growing a smaller company and the risk from an ownership transition with the risk of a leveraged capital structure that could have bad consequences for a company if it misses a beat.
Primarily startups that work with subprime Venture Capitalists that have fragmented their investment risk and from the beginning cannot support the runway to upside are entirely subject to the “blessings” of debt financing. The life-line of debt financing entering the startup world is an indicator of how subprime Venture Capital, downside investing, and the fragmentation and deflation of risk erode the opportunity for groundbreaking innovation.
Now, If we could only design an economic system that translates the sanity from these kinds of Family Offices into a Venture Capital playbook, perhaps why this Family Office is going direct.