Kickstarter money represents both revenue and a liability for the company that is doing the project. There are many types of liabilities which are not exactly debt in the sense that we think about a bank loan (which is also a liability). The thing that all liabilities have in common is that they represent an obligation of the company which could require them to spend money or other assets to fulfill. This does not mean they have to satisfy the liability, it just means that there is a financial justification for any work they do relating to that.

I am sure the accounting profession is continually being tested with new business models and trying to capture the financial reality for people who are playing very different games in the world of capital.

Debt is essentially selling a put option on your assets, but early stage companies don't have substantial assets. That's why convertible debt exist and why early stage financers demand equity.

Though, the more and more I think about the grand-parents comment, the less I understand it:

With debt, you can go into default: so all your assets go to the creditor, instead of you paying. That's like buying a put option, not selling one.

Your parent post's statement is a reference one of the basic financial models in asset pricing literature, the "Merton model" (Merton RC. 1974. "On the pricing of corporate debt: the risk structure of interest rates." J. Finance 29:449–70)

Honestly? That statement seems a tad simplistic to me. Especially in the context of startups.

Lending to getScale is vastly different to lending to IBM.

Therefore the debt/equity argument and balance is vastly difference.

How does the urge to grow separate a startup from a business in the desire to obtain low cost debt?

I'm not saying you are wrong, more its a really bad example.

That is the central thesis of the linked article as well.

Too bad the theory is complete nonsense.

>> The basic theorem states that under a certain market price process (the classical random walk), in the absence of taxes, bankruptcy costs, agency costs, and asymmetric information, and in an efficient market, the value of a firm is unaffected by how that firm is financed.

In short, the theorem states that in conditions that will never exist in the real world, the value of a firm is unaffected by how it's financed.

>> the value of the company increases in proportion to the amount of debt used

First they say "the value of a firm is unaffected by how it's financed", but then: "the value of the company increases in proportion to the amount of debt used", so if "debt used" counts as "financing" then the theory contradicts itself, at least as described by Wikipedia.

This is where I rambled about some other related stuff, but decided to just leave it out because fuck everything about mainstream economics.

If only Modigliani and Miller weren't total idiots. Then they might have repeated their calculations with these assumptions relaxed.

First they say "the value of a firm is unaffected by how it's financed", but then: "the value of the company increases in proportion to the amount of debt used", so if "debt used" counts as "financing" then the theory contradicts itself, at least as described by Wikipedia.

If you bothered to read the article, you'd recognize that Modigliani-Miller actually did the exact calculation you previously criticized them for not doing. Similarly, if you read it, you'd recognize that the claims you think are contradictory actually apply to different circumstances (taxes vs no taxes).

What next, medicine is contradictory because "if you don't eat cyanide, you probably won't drop dead, but if you do eat cyanide you will"?