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I am reading “The hard thing about hard things” by Ben Horowitz, and there he mentions an advice from a venture capitalist who said, “Ben, think about how you might run the business if capital were free.” what does “if capital were free” mean?

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  • For a long time, capital has been essentially free. It's not right now, and that explains why a lot of startups and publically traded growth-oriented companies are laying off employees. Feb 4, 2023 at 1:02

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Translation: "... If you could borrow money without having to pay interest."

Interesting as a thought experiment for exploring your priorities independent of practicalities, perhaps, which I assume is what the book is suggesting.

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It's not completely clear without the full context, but here's my interpretation:

When a company has financial obligations, either to debtors or shareholders, it reduces the amount of risk they can take, since if they fail to pay that debt, they are in danger of going out of business completely. It forces a business to invest in safer, more conservative, but lower return, projects for fear of being shut down.

If "capital were free", meaning you could borrow with no payments or raise money through equity without anything expected in return, you are free to invest in whatever projects you want, which frees managers to be more imaginative and risky without that fear of failure.

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