As I have written here before, it is common for entrepreneurs to offer to their investors preferred stock in their new ventures to raise capital. Preferred stock terms have strong protection for investors and in the end no debt is put on the company.

Venture debt is another form of financing companies. The investors loan money to the company instead of buying an ownership stake.

For example, UTFC Financing Solutions LLC, a Utah firm specializing in venture debt, funds entrepreneurs by extending loans with attached warrants. Usually, the loan must be paid back with terms of 14 percent interest over five years or so, plus UTFC receives the right to purchase a small percentage of the company.

Critics deride such terms as "backward" and anti-entrepreneur. After all, they ask, who would take on debt in the early stages of a company? But in my view there are ample reasons why early-stage debt may be the "preferred" choice - pun intended.

A side-by-side comparison of three rounds in a standard investment scenario shows that the use of venture debt over equity reduces by 10 percent the amount of the company the entrepreneur has to give to investors. In a typical situation that could be $1.5 million just through a round or two. If the company becomes wildly successful the savings could be in the tens of millions of dollars of value that the founders get to keep or share with their employees.

That seems incredibly pro-entrepreneur, doesn't it?

the company. Why would venture debt investors give up that percentage? The venture debt investor gets one important thing: reduced risk, expressed mostly through a secured credit position and priority over equity investors.

So, does it really work in the end? Critics say no - especially not for tech companies. I asked several tech entrepreneurs why they took on venture debt in addition to, or instead of, equity investment. I found many tech companies that have been blessed by venture debt.

Jeff Smith, serial entrepreneur and creator of several successful Utah companies, said he would "look at venture debt as an option because it is less dilutive." Bjorn Espenes, CEO of Infopia, echoes the less dilutive nature of venture debt and added that his venture debt investors have been "as supportive and committed to our success as any equity investor," and "having taken venture debt was never an issue as we went to raise subsequent equity rounds from venture capital funds." Another local venture capitalist told me that venture debt "definitely works. ... I think the structure works well, and I think (the outcome of the deals) proves that it does."

Each situation is different. Preferred stock will be right sometimes - as a matter of fact, I am in the middle of putting together a preferred stock deal right now. But there are other times when venture debt will be the way to go. An extreme position against Utah's venture debt structures is naive and unfounded.

Which is not to say that there is anything specifically wrong with those who, in the words of one 2006 blogger, would like to "kick Silicon Valley's butt." It's an intriguing idea, and on some levels I'd like Utah to be Silicon Valley-ish. But not entirely, and not too fast. After all, Rome was not built in a day.