Ditto for equity
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.
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.
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.
[1] https://media.gm.com/media/us/en/gm/news.detail.html/content...
As you can see, 15% interest rates will do that. But this is one of those weird PE setups where the left hand is lending to the right hand.
When did the discussion about “financing structure” become a discussion on ethics? Or are you already taking the “bullshit business hockeystick promises” as a “given in the industry”?
Why are fraudulent business practices the first thing that come to your mind?
If you told me about WACC and how equity is like actually really expensive way of financing: ok, I get it, some cool discussion on a provocative questionmark.
Kind a telling on the industry in a sense :-D
Use it or lose it as they say.
Equity is the most expensive financing - especially for startups.
The opportunity costs for funding a “high risk of failure startup” that even just has your money sitting on a bank account is fairly high. When S&P500 markets return 20% p.a. - I’d wanna see 100+% return p.a. on my risky startup (it is of course less of a normal distribution kind of thing, more a “lose many and maybe win one”).
So actually due to inflation and the opportunity costs associated with the risks you have - stuff may or may not depreciate unknowingly.
Watches are only gonna be worth what a seller gives you when the need of selling it arises. Correlation breakdown between asset classes etc etc has made many people not so happy about the decisions they made with more exotic investments and the believe that “not everything depreciates”.
A more fundamental and underlying problem may be: we print too much money and inflation is probably hitting insane levels but “hidden well beneath the improvements in society’s productivity”.
In a Knightean’s risk sense, we may actually be constantly facing “uncertainty” but believe we are dealing with a more predictable concept of “risk” in our lives. Taleb has written a few good books on it.
I’ll take your equity any time. Your debt not so much.
Burning through other people’s cash on false promises IS NOT the same as having a more equity heavy financing. Either you fund your companies operations through equity or you fund it through debt. So how on earth are you going to fund a company if you don’t want to do equity or debt?
I’m an equity guy. Funded all my shit with my own money and enjoyed the upside. So you’ll get an exclamation mark you can downvote in addition in this post:
!