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Debt is coming to the tech industry

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Re: Debt is coming to the tech industry

#41

Post by jotakami »

katzgrau wrote: post #18
axegon_ wrote: post #12

Earlier quoted context omitted.

> 2008 is coming again soon I have no idea why people __LOVE__ making these statements. 2008 was something that affected mostly the US and while it affected the rest of the world to a certain degree, overall very little changed. Before jumping on my throat, hear me out: There have been several significant financial events since then: the European debt crisis, then Portugal(which is relatively small on a global scale)…

I'm equally perplexed as to why people always seem to think a big downturn is right around the corner. Maybe there are always enough warning signs that someone with a sufficient penchant for confirmation bias will latch on to. Regardless, nobody can tell the future - there are simply too many unknowns to consider. We will certainly have more good times and bad times. As to when they come, predict all you want, but hi…

In a nutshell, Austrian economics. Central banks have made money ridiculously cheap for over a decade, and this leads to malinvestment: investors pour this cheap money into projects that probably yield negative real returns, because there is way more money floating around than viable projects to spend it on. Spend capital on negative-yielding projects for long enough and you erode the productive capacity of the economy until a crisis hits.

That’s the story; hard to say how well it describes reality but there’s surely a modicum of truth in there at least.

Re: Debt is coming to the tech industry

#43

Post by H8crilA »

I'm really not sure what's the point of the article. The idea that there is no debt yet in "tech" isn't even true. Uber, WeWork, and especially Tesla have been raising capital via debt. Not to mention Brex which covers the tail end of the startup market with "debt backed by revenue". I'm putting it in quotes because it's a ridiculous idea.

Re: Debt is coming to the tech industry

#44

Post by martinald »

wongarsu wrote: post #40
juped wrote: post #16

Debt financing would be wonderful (note to non-business-savvy readers: this is not even remotely the same kind of thing as personal credit card debt or whatever other completely unrelated thing is making you sanctimoniously kneejerk that "debt is bad". Can we please have an informed discussion of debt as a part of a business capital structure?) for software businesses, which have very predictable capex costs. The iss…

I don't think it's only cultural, software businesses also have very few assets that could be liquidated. Volkswagen might finance 2/3 of everything it does with debt, but if it just stopped tomorrow and sold all production facilities then lenders would get more than half their money back. If a typical software startup stops operating and sells off all its assets it gets a bit of spare change and the lenders leave wi…

I'm really not sure if that's the case. With some stuff (eg: car fleets) which are pretty liquid they may get a return. But on some super specialised machinery for VW which only makes VW specific parts they are going to really struggle to get any money for it.

Re: Debt is coming to the tech industry

#45

Post by hcknwscommenter »

lmm wrote: post #30
lifeisstillgood wrote: post #22

Debt and VC are just sides of the same (multi-sided) coin. The money has to come from somewhere - domestic savings, commercial profit or sovereign wealth. The unicorn phenomenon is easier to explain this way - if you are already a company that can consume huge amounts of debt (you have a business model, product and route to market and just need to replicate) then you used to have one choice - take on debt. Now, where…

> As such the only likely way "debt is coming" is if interest rates climb, giving money an alternative to VC. Surely that's backwards: a lot of money really wants to be invested in debt, and is only doing VC because the returns to debt investing are so bad. Offer those investors a better alternative - comparable returns to a second-tier VC fund (which is not actually that hard), with something they can pretend is a s…

I'm not sure entering the bond market is possible. These "startup user bonds" would be unrated, beyond junk, accessible only to accredited investors, etc. The debt would probably take the form of some type of a CLO or ETN wrapper? I'm just speculating here. Anyone with better insight?

Re: Debt is coming to the tech industry

#47

Post by shreyshrey »

tshtf wrote: post #31
shreyshrey wrote: post #25

Think of debt as a way to gain market leverage. Leverage is good if you are reasonably certain of the outcome. https://news.ycombinator.com/item?id=20942950

Is there any reliable metric to know what reliable means here?

not sure of one specific number. Say you have achieved product market fit and the lifetime value of your customers (LTV) is less than three times the cost of acquisition, you probably be better of getting leverage from debt and gain marketshare. Depends on the market you operate though.

Re: Debt is coming to the tech industry

#48

Post by isoskeles »

juped wrote: post #16

Debt financing would be wonderful (note to non-business-savvy readers: this is not even remotely the same kind of thing as personal credit card debt or whatever other completely unrelated thing is making you sanctimoniously kneejerk that "debt is bad". Can we please have an informed discussion of debt as a part of a business capital structure?) for software businesses, which have very predictable capex costs. The iss…

What are these cultural reasons that make bankers not want to lend?

Re: Debt is coming to the tech industry

#50

Post by _yhdy »

Yetanfou wrote: post #11

Debt is like medicine: useful to cure certain conditions but nothing to be burdened with your entire life. Once the condition is cured the medicine is no longer needed. It is also like medicine in that it has a tendency of ending up being worse than the condition it was meant to cure when taken irresponsibly or in too large a dose. There's another way in which debt resembles medicine: those who sell it are wont to se…

Very good comment
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