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Debt is coming to the tech industry

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Re: Debt is coming to the tech industry

#111

Post by ska »

martinald wrote: post #101
sokoloff wrote: post #62

Earlier quoted context omitted.

Industrial machinery is usually more fungible/configurable than that. No one (except the secondary parts makers) has much use for the dies to stamp out Tiguan fenders, but lots of sheet metal fabs (inc other auto makers) can use the stamping presses. It might be 30¢ on the dollar, but that’s likely better than the office chair and laptop that a software startup will leave behind.

Oh totally agree at them getting something for it. Just I doubt they'd get 2/3rds of the value of equipment.

The claim was different : that maybe 2/3 of their business activity was financed, and if it was liquidated tomorrow the lender would be able to get “more than half” of that back.

Re: Debt is coming to the tech industry

#112

Post by gfodor »

The post is predicated upon assumptions surrounding the risk to recurring revenue cash flows from SaaS customers. I'm not sure why the author thinks these cash flows can be well understood enough to securitize to support lending -- it'd be good to understand what's changed recently (given that the first SaaS companies are more than 20 years old) that lead one to believe debt markets can now suddenly price risk on these revenue streams now.

In other words, why should we expect this now, if it hasn't happened already? If we suddenly saw debt markets becoming attracted to startups, I'd put just as much weight upon it as a cultural norm shifting than fundamental analysis showing a change to the risk profile. And you know what that means: if it's a cultural change, not justified by new evidence, it's either a late realization (safe, and regrettable) or irrational (incredibly dangerous.)

Re: Debt is coming to the tech industry

#113

Post by lumost »

Grimm1 wrote: post #81
pcmaffey wrote: post #54

> Furthermore, in the Bay Area Founder-VC scene, FK/PK tension simply isn’t perceived as a problem. Founders increasingly think of themselves as capital allocators who think in bets, and the angel investing scene has brought founders and VCs together as social peers. There’s no FK/PK tension between investors and founders. They all want the same thing, and they all hang out at the same parties. The tension has simply…

I can say in the New York scene the opinion seems to be quite the opposite. There is a non-trivial amount of wariness when it comes to VC money.

The same is true in Boston, most founders look to bootstrap through the seed rounds.

Re: Debt is coming to the tech industry

#114

Post by virgilp »

spyckie2 wrote: post #100

The biggest problem with this idea is that it doesn't really have a good market space. If your company revenue is too small, your subscription backed debt is just an inferior financial product compared to equity, which handles risk much better. If your company revenue is large enough, you have plenty of financial tools to keep your company fiscally healthy. The only time I can see it being useful is if you want to tr…

I read it the other way around. If BigCash, co. advertises “we securitize your growth - get free money to grow based on your business metrics!’, and you’re a startup founder - would you be interested, or would you say “nah, I think I’ll just do another round”?

OTOH I’m not sure I understood it well :D

Re: Debt is coming to the tech industry

#115

Post by bob33212 »

spyckie2 wrote: post #100

The biggest problem with this idea is that it doesn't really have a good market space. If your company revenue is too small, your subscription backed debt is just an inferior financial product compared to equity, which handles risk much better. If your company revenue is large enough, you have plenty of financial tools to keep your company fiscally healthy. The only time I can see it being useful is if you want to tr…

If you had a really clear plan on how the creditor could take over your top traunch of revenue in the event of default it could work. But even in that case you should still be in good shape to negotiate acceptable equity arrangements with VCs if you need cash

Re: Debt is coming to the tech industry

#116

Post by aguyfromnb »

rossdavidh wrote: post #55

"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…

>substitute "mortgage" in this sentence, think back on events of the last decade, and you can see what is horribly wrong with this article.

Plenty of people properly modelled sub-prime mortgages, and made bets accordingly. Corporations are pretty good at modelling cash-flow, too.

I think you're conflating "an inability to do so" with "caring about the results".

Re: Debt is coming to the tech industry

#117

Post by aguyfromnb »

paulgerhardt wrote: post #85

Less any bright eyed startup founder take this post too seriously, I’ll spell it out: venture debt is bad. Debt issued to established companies is an essential mechanism to bridge working capital needs - like GM procuring millions of pounds of sheet metal before selling thousands of cars. This is not controversial. Venture debt issued to startups by bankers, especially by the kind of bank who fancy themselves as a Ba…

>When this happens the bankers will freak out and pull your working capital. Or exercise a clause that forces a premature sale. Or...or..or.

How is this different than the "next round" of a venture raise vaporizing and being left with no money?

Re: Debt is coming to the tech industry

#118

Post by Wildgoose »

axegon_ wrote: post #29
hobs wrote: post #17

Earlier quoted context omitted.

I dont know why this is downvoted - the EU implemented austerity and it took a gigantic chunk out of its economy in the last ten years - why is this controversial? Spain's growth rate has been what, 0%? Greece is totally screwed, and there's a strong set of evidence to say Brexit was a direct result of the 2008 crisis (because they pushed back so hard on austerity.)

> there's a strong set of evidence to say Brexit was a direct result of the 2008 crisis. Nah. The only selling point on the referendum was immigration. The only one people really cared about anyway.

A lot of people cared about Democracy and the ability to hold the politicians we elected accountable for the decisions that were made. Mass immigration was important, but it wasn't the only factor.

Re: Debt is coming to the tech industry

#119

Post by bobbyi_settv »

Grimm1 wrote: post #81
pcmaffey wrote: post #54

> Furthermore, in the Bay Area Founder-VC scene, FK/PK tension simply isn’t perceived as a problem. Founders increasingly think of themselves as capital allocators who think in bets, and the angel investing scene has brought founders and VCs together as social peers. There’s no FK/PK tension between investors and founders. They all want the same thing, and they all hang out at the same parties. The tension has simply…

I can say in the New York scene the opinion seems to be quite the opposite. There is a non-trivial amount of wariness when it comes to VC money.

A lot of that is sour grapes. The majority of people who loudly explain that they wouldn't want a large VC round are people who aren't in a position to raise a large VC round.

Re: Debt is coming to the tech industry

#120

Post by samsonradu »

caspper69 wrote: post #64
looping__lui wrote: post #61

Earlier quoted context omitted.

?

You can't maintain anything for free; everything has a carrying cost-- even cash in the form of depreciation. Use it or lose it as they say.

Not everything depreciates over time, does it? Looking at housing in many hot markets or at collectible watches fe.
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