One of the few good things about losing money (humor me) is that the government isn’t on your back to collect taxes, so they don’t give you a deadline to close your books and submit financial statements.

After all, if you make money, you have to pay taxes… but if you lose money - and what self-respecting startup and entrepreneur doesn’t? - you don’t pay income taxes. It’s pretty simple: the government can’t be bothered with losers and doesn’t ask you to issue your financial statement - namely your income statement and balance sheet (the third financial statement being changes in cash flow) - so this gives you ample time to avoid closing your books.

However, if you ever want to set up a credit line or raise debt financing, then you need your financials to be up-to-date. “Who cares what you did in 2006… it’s 2008 already… so where are your 2007 financials?”, I was asked by our bank manager.

When I was studying finance and learning from Warren Buffett’s playbook, I thought debt was murder.

But on the operations front, it’s plain simple: we need more hardware, more software and more mindware (aka people). If I have to choose between staying debt-free and passing up opportunities or chasing opportunities and kicking ass, I’ll choose the latter. It’s really that simple.

Don’t get me wrong: It’s one thing to invest in a company with debt; it’s another for a CEO / CFO to raise debt.

Also, once you understand financial engineering, you can always restructure your capital structure and clean up your balance sheet according to an investor or buyer’s needs and preferences. But until either one of those things happen, you can’t be bothered.

Yes: debt is the devil’s currency, but selling equity is the fool’s currency of choice, if you ask me, especially with content companies, which most investors don’t get and aren’t comfortable with to begin with. If the founder of a tech company goes bonkers, starts doing lines of coke off a hooker’s ass, the investor can bring in a techie to run the ship. But if the founder of a content company goes yaya and starts doing jello shots with a stripper… who comes in to scream “action”? As you can see, it’s a different ball game…

But like anything else, you can turn a negative into a positive: debt helps you avoid the friction you are bound to have with outside investors. Don’t get me wrong, debt is uber dangerous as debtholders stand ahead of stockholders and don’t care about much other than getting repaid, and on time, but because the interest paid on debt is tax-deductible and you don’t dilute your holdings (if structured right), then debt is less painful and less of a waste of time than selling equity.

In some 30 months of managing WatchMojo.com, I will go on record to say that investor roadshows is the #1 biggest waste of time and money. I’ll gladly take half the blame for such waste of time… but trust me, do yourself a favor and don’t bother with would-be investors. When they bend over backwards to meet you, let alone invest in your company, consider returning their call… why?

Truth is few people can raise debt, and VCs play this card quite well to their advantage. More power to them, frankly! A sucker is born every day and usually, in the VC/Entrepreneur/Banker ecosystem, the sucker is the CEO for playing along the sham that is fundraising.

Anyway, with that off my chest, for whatever reason, I’m sharing some stats.

From 2006 to 2007 , as a debt-free company with no outside funding:

- our revenues grew 154%
- our costs grew 78%

While losses accounted for 213% of revenues in 2006, the next year; in 2007, they only accounted for 149% - yes, small consolation, I know.

Thankfully, in Canada, we get back a decent portion of R&D in tax credits… as a content producer, our R&D costs are lower than a pure tech firm… but let’s face it, most tech firms have $0 revenues early on, whereas a smart media firm always has revenues (how come? I’d tell you but I’d have to kill you). Since we still invest a good portion in technology and development, so we will get back some costs…

Which takes us to the moral of the day: it’s not enough to be a good marketer or a good techie, you do need to have a good sense of accounting principles and financial know-how. When I think of all of the money that has gone into WatchMojo.com, for what it’s worth, a part of it has come from re-invested proceeds (tax refunds, credits, etc).

As my father would say: if you’re going to owe the bank money, don’t owe them $1,000… owe the $1,000,000… then and only then will they care about anything else than being repaid, and repaid on time.

But that’s another post for another day.

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