Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Debt is coming to the tech industry

alexdanco.com

Post reply on HN
Print view View original

121–130 of 204 posts

Re: Debt is coming to the tech industry

#121

Post by Yetanfou »

UncleEntity wrote: post #94
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…

> Maybe debt, like medicine, should only be allowed to be taken with a prescription? Isn't it though, really? The bankers determine your "need" and price it according to the risk of you defaulting -- which would seem to put a kink in TFA's argument since most startups fail, the interest rate would be astronomical if true risks were priced in.

Bankers both 'prescribe' as well as sell debt, this is - in theory, at least - different from medicine where the prescriber is not related to the seller.

Re: Debt is coming to the tech industry

#122

Post by formercoder »

bobbyi_settv wrote: post #119
Grimm1 wrote: post #81

Earlier quoted context omitted.

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.

Or maybe the folks who don’t want VC money don’t start businesses that require it.

Re: Debt is coming to the tech industry

#123

Post by paulgerhardt »

aguyfromnb wrote: post #117
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?

Time horizon. Capital gives you 18 months. Your debt instrument can be pulled overnight.

Re: Debt is coming to the tech industry

#124

Post by Androider »

corford wrote: post #59

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.)

Stripe themselves are also doing it now https://stripe.com/capital

The sums are pretty small right now, but the basic model is there.

Re: Debt is coming to the tech industry

#125

Post by ahominid »

My background in financial engineering is limited to trying to make sense of articles like this so maybe someone more in-the-know would be kind enough to help me understand. But when you securitize an asset, isn’t it typically an asset that has intrinsic value, e.g. property of some sort that can be easily liquidated? It seems to me that recurring revenue for a service only has value as long as that service exists. So if some startup selling dog food subscriptions stops providing that service, the subscriptions are worth exactly zero.

To take the example further, would said startup now be unable to sell the book of business to someone else before going broke?

Re: Debt is coming to the tech industry

#127

Post by swiley »

ahominid wrote: post #125

My background in financial engineering is limited to trying to make sense of articles like this so maybe someone more in-the-know would be kind enough to help me understand. But when you securitize an asset, isn’t it typically an asset that has intrinsic value, e.g. property of some sort that can be easily liquidated? It seems to me that recurring revenue for a service only has value as long as that service exists. S…

I’d imagine that’s how you end up with companies like Verizon taking over services like tumblr.

Re: Debt is coming to the tech industry

#128

Post by jacques_chester »

hcknwscommenter wrote: post #45
lmm wrote: post #30

Earlier quoted context omitted.

> 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?

That's still an enormous potential pool of capital that's currently making very little.

Re: Debt is coming to the tech industry

#130

Post by jklein11 »

nwenzel wrote: post #108
jklein11 wrote: post #93

Earlier quoted context omitted.

Do you have examples of companies with positive margin and operating cashflow that went belly up because of outstanding debt? I would think the debt holders would rather cut a deal than let the company go belly up. $.50 on the dollar is better than zero cents on the dollar.

General Motors. Several airlines. You’re describing bankruptcy protection. It means the debt holders will agree to pennies on the dollar or possibly even to forgive the debt but take over the equity wiping out the common shareholders. Companies can file for bankruptcy protection or debt holders can effectively force companies into bankruptcy if they default on their debt payments.

I’m not sure GM fits the bill. It looks like their operating cash flow was negative in 2008.(1)

[1] https://media.gm.com/media/us/en/gm/news.detail.html/content...

Post reply on HN