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Debt is coming to the tech industry

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Re: Debt is coming to the tech industry

#101

Post by martinald »

sokoloff wrote: post #62
martinald wrote: post #44

Earlier quoted context omitted.

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.

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.

Re: Debt is coming to the tech industry

#102

Post by aianus »

CPLX wrote: post #57
H8crilA wrote: post #43

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.

> As far as I can tell Brex literally just “lends” money to people that already have money. 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.

It's exactly the same as Chase lending an individual Google engineer $5k for free for the month on his Visa card despite the engineer having $50k in his savings account already.

They make money on the interchange.

Re: Debt is coming to the tech industry

#103

Post by conanbatt »

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…

> 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?

So will all of the equity. I'm against debt in general as a means of funding and financing because it dissasociates the interest of the debtor with the creditor. But having debt as an option functions as a great competitor to equity based funding, which means that it gives founders more leverage to get better deals in either system.

Note that people out there are parking money in negative interest rate bonds today: wouldn't that money be better served in low yield-AAA debt on tech companies that have the business model to back it?

Re: Debt is coming to the tech industry

#105

Post by jklein11 »

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?

Yeah true, I guess it wouldn't be a question of $.50 on the dollar vs nothing. Maybe extending the repayment period so that payments are lower but it increases the total financing costs?

It just seems to me that if a company is doing something profitably, that would be the company I would want to lend money to.

Re: Debt is coming to the tech industry

#107

Post by bobthepanda »

woah wrote: post #75
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…

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.

You don't need that many participants in a bubble for it to have systematic impact. You just need enough participants inconveniently placed throughout the economy who stop paying their bills to various people.

Re: Debt is coming to the tech industry

#108

Post by nwenzel »

jklein11 wrote: post #93
pjc50 wrote: post #66

Earlier quoted context omitted.

No - equity doesn't require servicing. Plenty of businesses have collapsed despite having positive margin and operating cash flow, but outstanding debt. It's almost a feature of the "private equity looting" model that killed Toys R Us and Maplin, among others.

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.

Re: Debt is coming to the tech industry

#109

Post by ska »

jklein11 wrote: post #105
alexilliamson wrote: post #99

Earlier quoted context omitted.

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

Yeah true, I guess it wouldn't be a question of $.50 on the dollar vs nothing. Maybe extending the repayment period so that payments are lower but it increases the total financing costs? It just seems to me that if a company is doing something profitably, that would be the company I would want to lend money to.

Or get your money out now in the first tranche and do something less risky with it? It’s not just the face they are profitable, it’s opportunity cost and risk also. If pulling out now screws everyone else involved,it’s not really their problem is it?

Re: Debt is coming to the tech industry

#110

Post by gfodor »

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…

Your last point should come first so people don't miss it -- securitized RR as proposed in this post is not the same thing as venture debt.
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