Debt before product-market fit turns uncertainty about demand into a fixed monthly obligation. A founder should only take it when realistic customer receipts can cover repayments even if sales take longer than planned.
In 1998, Iridium LLC began commercial service for a global satellite phone network that Motorola had spent years developing. The company had a network in orbit, a product for sale, and debt that could not wait for a gentler learning curve with customers.
The demand did not arrive at the pace the financing required. Iridium filed for bankruptcy in 1999, less than a year after launch. Its assets later found a different life under new ownership, but the original capital structure had already made the first version of the business too expensive to discover whether enough people wanted it.
That is the trap inside a Lagos SaaS term sheet that preserves the cap table. Equity gives a founder time to learn. Debt gives a founder a calendar.
The repayment date becomes part of the product roadmap
A founder opens the term sheet after another difficult month: pilots are active, a few prospects have asked for proposals, and the product is useful enough to keep building. Revenue is still uneven. One customer wants a custom integration before signing. Another says the budget may open next quarter. A third uses the demo but has not put a buyer in the room.
The debt offer is attractive because it does not take shares. The founder can hire an engineer, pay cloud bills, and keep ownership intact.
Then the repayment schedule changes the meaning of every product decision.
A feature that needs another customer conversation starts to look like a delay. A pilot with uncertain expansion potential starts to look like a distraction. The founder may push customers to sign before the workflow is ready, or sell a custom build that brings cash this month and pulls the company away from the product it was trying to validate.
Debt can fund a business with predictable collections. It can punish a business still trying to find predictable demand.
This is why [Ama’s retailer trials](\/blog\/ai-demo-validation-what-two-real-retailer-trials-taught-ama-about-runway-aba0f731\/) matter beyond AI demos. A working product and a repeatable reason to buy are separate things. Repayment does not care which one you have.
Preserve ownership only after protecting the downside
The cap table is easy to see. The downside sits in the parts of the term sheet that deserve a slower read: the repayment start date, personal guarantees, security over company assets, default triggers, and what happens if a customer pays late.
Before accepting, build a cash view that assumes the next two expected contracts do not close when planned. Use actual collection behaviour from current customers, not proposal values. If the repayment still works after delayed invoices, cloud costs, salaries, and tax obligations, the debt may be carrying working capital rather than hope.
If it only works when every promising conversation converts, the company is borrowing against a story it has not yet proved.
In Lagos, that distinction can disappear because founders often have to keep several realities moving at once: local customers, diaspora buyers, overseas contracts, and a small team whose attention is already divided. Cash in one market may not arrive on the same timetable as costs in another. The repayment date remains fixed anyway.
Customer evidence should set the financing limit
The useful question is not, “How much debt can this company raise?” Ask, “What repayment can our current customer behaviour support?”
Start with the revenue already collected. Identify what renews without a founder chasing it. Separate paid usage from free enthusiasm. Then calculate the smallest reliable monthly cash inflow, not the most optimistic one.
That number should govern the size and terms of any debt.
A founder who has three customers renewing a clearly defined workflow has evidence to work with. A founder who has ten interested conversations and two open pilots has a different job: reduce uncertainty. The next money should buy evidence, such as a narrower product, a paid trial, or direct access to the person who owns the budget.
Iridium had built the costly system before it had enough evidence that the market would sustain it. The Lagos founder does not need a satellite network to repeat the same sequence. A repayment obligation can make a small SaaS company expensive before it is certain what customers will reliably pay for.
Keep the offer open while you test the demand
A term sheet creates pressure because it feels like an answer. It may be an option, not an instruction.
Ask the lender what changes if repayments begin later, if the facility is drawn in stages, or if the amount is smaller. A smaller facility tied to invoices may be less exciting and far more survivable. If the lender will not adjust terms for a business with variable demand, that tells you something about who is carrying the risk.
Use the next customer conversations to earn the right to take the debt. Get a paid commitment. Confirm who approves the purchase. Learn what has to happen before renewal. If those answers are still vague, protect the roadmap and keep the repayment clock from becoming your product manager.
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