71–80 of 204 posts
Can't find it now but I remember reading about a recently launched Seedcamp or Point Nine portfolio company that is doing this for B2C SaaS companies I think. You let them plug into your stripe metrics etc. and they then give you debt based financing (using AI/algos to determine amount and rate based on your numbers: churn, growth, recurring revenue etc.)
Earlier quoted context omitted.
The users paying each month are the assets in this article’s thesis. As long as when a company shuts down, they transition their users to a new entity (since they are valuable reoccurring revenue), the lenders will get paid.
Are you imagining a successful company with a large book of users generating a healthy ARR? If that’s the situation, the lenders will get paid, because the business will keep running. The more likely risk to a bond holder is that the company fails to generate a healthy business, pays most of the loan out in salary while trying, and now the lenders own the company which is a couple of two year old laptops and a few th…
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.
As far as I can tell Brex literally just “lends” money to people that already have money. They lend based on cash in the bank and have the right to debit cash straight from the bank account. It hasn’t been clear to me that they’re even involved in any kind of actual issuance of debt in a meaningful sense at all.
One of said vultures above raises debt from group of funds, buys a SaaS company, installs managers who understand cost optimization with no concept of growth, and hollow it out. Their nut is paying the interest back to their pension fund creditors, and their yield (after fees, naturally) is the delta between what they can squeeze out of cost reductions and making that nut.
I won't name the companies I think will be those targets, but speculating about privately held security companies as an example, it sounds like there is a clear exit sized at 10-15x revenues for anyone with traction, an API, and an office that has free snacks and a climbing wall.
"Any one customer may be unknowable, but cohorts of customers can be modelled and understood decently well." Just substitute "mortgage" in this sentence, think back on events of the last decade, and you can see what is horribly wrong with this article. Lots of debt, all given to tech startups, which will almost all go bust with the first recession. Let's see, what does that remind me of? Of course, if you believe tha…
In a mature business investors and founders are likely to be more aligned anyway because the founder's model has been working and has some length of history and predictability with regards to forecasting further growth and outcomes. To put it plainly while you can get screwed in the later stages you're much more likely to get screwed in the early stages of running a company.
With that in mind, one of the main benefits, as stated in the article that the debt investment is not dilutive, is still nice at the later stages but I wouldn't say people should exclusively decide to go with debt based on that reason alone because the largest dilution (and by consequence chance to be screwed) typically happens in the earlier rounds (unless you're getting bailed out) anyway.
"Any one customer may be unknowable, but cohorts of customers can be modelled and understood decently well." Just substitute "mortgage" in this sentence, think back on events of the last decade, and you can see what is horribly wrong with this article. Lots of debt, all given to tech startups, which will almost all go bust with the first recession. Let's see, what does that remind me of? Of course, if you believe tha…
The 2008 financial crisis was largely created by the perception that the government would take any downside. As long as we don’t have multiple generations of politicians campaigning on a platform of “every family deserves their own SaaS business” and buying up the debt, we’ll be fine.
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 understand your frustration and, largely, agree with it. You are correct that these are two different things and shouldn't be conflated.
Until they should be.
The two "types" of debt you are drawing a distinction between (or the familiar discussion of national debts vs. household debts, usually in the context of federal spending vs. austerity, etc.) do indeed behave differently under normal circumstances.
In extreme cases, however, these heuristics that you find so primitive and annoying are relevant and actionable. Ignore them at your peril.
https://www.fca.org.uk/consumers/mini-bonds
These havent been getting good press recently due to a number of failures.