Debt is coming to the tech industry • Hacker News Board

Re: Debt is coming to the tech industry

#141

Post by bisRepetita » Sat, Feb 08, 2020, 10:34 PM UTC

neltnerb wrote: post #134

lumost wrote: post #113

Earlier quoted context omitted.

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

I agree completely, but it's worth pointing out that a big reason for this is that Cambridge and Boston have vastly fewer and worse connected VCs than the bay area. I did try to pursue VC funding for a hard-tech startup (thin film deposition for making solar panel conductive pastes), but there was really only one VC group that was relevant so there wasn't exactly a surplus of opportunity money-wise just waiting for a…

>don't mind growing slowly (or don't mind never really growing much at all). Nothing wrong with "lifestyle businesses".

Are we ever gonna stop saying "lifestyle businesses" for business that don't want to grow 10% per month, and finally call them "businesses" like they are? If you want to make a difference, call them "non-startup".

Most businesses don't grow 10% per month, and they're still full fledge "businesses" with people working seriously on them, full time, not leisurely on the beach in Thailand.

Re: Debt is coming to the tech industry

#142

Post by mirimir » Sat, Feb 08, 2020, 10:38 PM UTC

neltnerb wrote: post #134

lumost wrote: post #113

Earlier quoted context omitted.

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

I agree completely, but it's worth pointing out that a big reason for this is that Cambridge and Boston have vastly fewer and worse connected VCs than the bay area. I did try to pursue VC funding for a hard-tech startup (thin film deposition for making solar panel conductive pastes), but there was really only one VC group that was relevant so there wasn't exactly a surplus of opportunity money-wise just waiting for a…

Trippy. But not if you're epileptic.

Re: Debt is coming to the tech industry

#143

Post by buboard » Sat, Feb 08, 2020, 10:45 PM UTC

corford wrote: post #67

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…

Yeah but unlike a mortgage (secured against one static asset i.e. a house), the article assumes most of this debt will be issued against the strength and quality of a company's various recurring revenue streams (even speculating that different components of this could be financed separately to try and account for the varied risk). Just need to make sure you don't end up with financers/banks/rating agencies colluding…

In a way houses were secured against the potential (recurring) rental yield they d make

Re: Debt is coming to the tech industry

#144

Post by ericd » Sat, Feb 08, 2020, 10:48 PM UTC

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.

Eh taking a lot of VC money opens up some options (hiring up fast, pouring money into marketing) and closes down others (being acquired for a modest amount and actually making anything as a common stock holder). It’s not right for every business.

Re: Debt is coming to the tech industry

#145

Post by paulie_a » Sat, Feb 08, 2020, 10:51 PM UTC

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 they don't want to be handicapped by vc. In this era a VC it is basically selling your company from day one without a real payout.

Re: Debt is coming to the tech industry

#146

Post by ttul » Sat, Feb 08, 2020, 11:07 PM UTC

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 have the opposite perspective. Doing a round means convincing investors you have a great long term plan to return their money via an exit. That’s a lot of hard work.

If you have revenue, convincing a revenue loan provider is a simple diligence process whereby they analyze your SaaS metrics. The future doesn’t factor into things much. They just want to know that things have been solid for a decent while, suggesting continued smooth sailing.

Re: Debt is coming to the tech industry

#147

Post by ttul » Sat, Feb 08, 2020, 11:10 PM UTC

pge wrote: post #13

“Debt helps you grow faster; debt helps you die faster.” - someone said this to me early in my career and it has stuck with me.

Just understand your downside. Are your shareholders going to bail you out if you have a big customer loss and can’t service the debt or fall off covenant?

What will your lender do? Are they going to throw a lock on the door and sell the chairs? It’s not necessarily the end of the world to default on secured debt. As a founder, you may he just fine after a lender-induces a recap.

But don’t leave that all to chance. Understand the downside risk before you draw down on debt and be comfortable with it.

Re: Debt is coming to the tech industry

#148

Post by gerdesj » Sat, Feb 08, 2020, 11:28 PM UTC

> Debt is going to finally come to the tech industry

Bear in mind that the tech industry exists in all countries with a population greater than 10. Also consider that this:

> When people in tech want to sound smart, one name you can drop is Carlota Perez.

... is probably nonsense or at best pointing out another point of view.

Not all companies work the way you think they do. Not all companies want to be yoked with the burden of continuous economic growth, always beholden to the irksome shareholder. My little company is about 20 years old now. We have never been in debt apart from a mortgage that we could pay off tomorrow (probably, cough ... ish) We will never set the world on light and you will never hear of us. We have 20 odd employees now and in five years time probably 20-40.

A few years back the UK decided to cede the union with Europe (c'est la vie.) The pound slid south about 30% rather quickly and IT stuff became 30% more expensive nearly overnight. We import nearly everything IT here in the UK. I can't say that my company noticed any downturn in trade, actually we have just hit £1M t/o two months early this year.

I hate this sort of article. Maybe in the US all companies are multi billion t/o setups. Here in the UK we are all simply "shop keepers" (Emperor Napolean said so) and fucking proud of it.

Re: Debt is coming to the tech industry

#149

Post by celticmusic » Sat, Feb 08, 2020, 11:34 PM UTC

alexilliamson wrote: post #99

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.

But aren't the debt holders typically the first ones to be paid in a bankruptcy?

yes, but some of the posters here are being purposefully disingenuous.

When getting a mortgage, one of the things the companies will look at is your income to debt ratio. For a company it's no different. Yes, there have been companies that have gone under for too much debt. There have also been plenty of companies that have done well even with debt.

When you hear people say "OPM", aka "Other People's Money", what they typically mean is taking on debt and paying it down over time.

And for the poster who stated you don't have to service equity... that's completely bullcrap. We've all heard stories of VC's shuttering a profitable company because they weren't profitable ENOUGH. There's a cost to everything, that equity isn't free.

Re: Debt is coming to the tech industry

#150

Post by orasis » Sat, Feb 08, 2020, 11:35 PM UTC

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…

Then the founders you’re spending time with are idiots.

Making massive win/lose bets only makes sense if you’re diversifying across a portfolio.