Comment by seanhunter | Hacker News Reader

Comment by seanhunter | Hacker News Reader

What a weird analysis.

A company that has revenues and is extremely well-capitalized gets debt finance. That is not news. That is totally commonplace. "Shouldn't all their capital come from investors?" No. Companies at all stages typically use a mixture of debt and equity finance.

His EV calculation is completely flawed also. Debt finance is typically senior to equity in recovery at bankruptcy, so when JPMC do this analysis (and believe me they did this analysis) they are not assuming 0% recovery. They are thinking it is most likely in a bankruptcy that they get some x>0% recovery.

Finally, banks don't think about their relationship with a multi-billion-dollar company in terms of the ROI on a single revolving credit. (even though this will in all likelihood be very profitable for JPMC). They think about how giving this revolving credit makes it more likely they get advisory on any future bond issuance and I-banking work when OpenAI want to do takeovers, and a foot in the door at IPO time etc.

Yeah, I thought it was weird right away too, but brush it off as a tech blog... but then I realized it's actually a finance website. Ruins the credibility of the website instantly.

The $4B revolver will likely sit undrawn. When it gets drawn, there usually a specific plan to reduce it back to zero. It's not for building data centres, a revolver typically used just for timing differences like a credit card is used (and the lenders will be paying attention). Also, when things get bad, there are covenant triggers which would allow lenders to renegotiate.

The other part is that it's a revolver, not a bond.You only pay what you use. It's not uncommon in VC. If you need to buy stuff now but your next round is in 2 months the revolver saves your ass. And once you raise you pay it back.

Agreed. Crucially, it doesn’t ask _why_ they want this line of credit and assumes it’s to serve as an equal source of financing as capital investment. Yet, I think the reason for this credit line is rather straight-forward risk management: it is not at all inconceivable that any one of the numerous legal proceedings the firm is already entangled in (to say nothing of ones surely to come) conclude in settlements that would be existential without it. If I were an OpenAI investor, I would certainly want a story for how they would handle such an expected emergency. A few other high-growth startups are publicly known to have obtained such a line of credit at a similar stage.

It's a badly researched article too.

> OpenAI is going to generate $3.6 billion in revenue this year, but the costs will lead to a loss of more than $5 billion.

We know that actually:

> OpenAI generated around $4.3 billion in revenue in the first half of 2025... OpenAI said it burned $2.5 billion

> OpenAI looks to meet its full-year revenue target of $13 billion and a cash-burn target of $8.5 billion, the report added.

https://www.reuters.com/technology/openais-first-half-revenu...

Who is paying them all that money do you think?

Paying them the revenue?

Well I am personally, and the last 2 places I've worked have too.

Worth every cent!

Are there other examples of well capitalized technology startups that have significant revenues that have also opted for significant debt financing?

Amazon issued $1.25 billion in convertible debt in 1999: https://www.wired.com/1999/01/an-amazonian-debt/

Convertible debt is very different: if you do the same (simplistic) analysis as in the article, it behaves almost like the equity example, not the debt one.

Amazon?

https://www.seattletimes.com/business/amazon-pays-off-its-hi...

We had way more debt than venture financing in the pre-ipo days of DigitalOcean. Thanks Michael Dell!

As a shareholder, thanks for going the convertible debt route! I like the fact that the company became profitable but the call option component of the previous round of "senior convertible notes" expired out of the money.

Comparatively speaking, I don't know why investors won't touch DOCN with a 10-foot pole, but I will gleefully reap my returns from dividends and stock buybacks when DOCN laps AWS in 20 years with better services maintained by better engineering staff.

Are there other examples of well capitalized technology startups

I think we're well beyond the point where OpenAI can be called a "startup."

Pointless argument unless you define what startup means.

Different dictionaries provide different definitions.

A common one is that it's small and recently started business, but it's a very vague boundary.

Half a trillion dollars isn't "small" no matter how vague you want to make the boundary.

Neither a billion isn't small no matter how vague you want to make it, yet, we label startups with this valuation as unicorns. So where is the boundary? 10 billions? 100? 1000?

This is literally the reason behind the collapse of Silicon Valley Bank. Debt keeps your cap table untouched, its very tempting at certain stages

I'm going to paraphrase Matt Levine here -- the central trick of bankers is to divide debt into tranches of claims of different seniority, with different rates of return. Debt is a way to borrow money from investors where they actually have a generally low rate of return specified and have a senior claim on being paid back in the case of insolvency. Stocks are a way to borrow money for investors where they get basically _nothing_ in the case of insolvency, but they expect a higher return from either dividends or stock buy backs, or just from company growth. Different investors have different goals in terms of risk/reward for what they want out of a company they invest in, and providing investors more options unlocks more opportunities to raise money.

> well capitalized technology startups that have significant revenues that have also opted for significant debt financing?

Debt is almost always cheaper than equity. Particularly if you can collateralise.

Well-capitalized companies rejecting debt is more of a Silicon Valley outlier in the global economy. (It likely stems from dot-com trauma.)

It stems from the relatively low capital requirements of tech companies relative to other industries (pre-LLM). Now that this factor has changed we see them rapidly adopting debt financing for their capital intensive LLM projects.

> stems from the relatively low capital requirements of tech companies relative to other industries (pre-LLM)

Not really. Tech, including low fixed-cost software, has been tremendously capital intensive for decades. Early-stage start-ups lack the cash flows to fund debt. But post-Series B companies raising equity are generally doing so for idiosyncratic reasons, e.g. capital sponsors being concentrated in equity for historical reasons, valuation escalators and capital denial to competitors.

I don't think you understand what capital intensive means. Many tech companies are started out of their founders apartments for essentially 0 startup cost and from here the only serious costs are salaries and AWS. There's a reason that tech founders get so much richer than founders in other industries and that reason is because the minimal capital requirements allow them to sell off so much less of the company before reaching massive scale.

> don't think you understand what capital intensive means

I may have missed something in my career on Wall Street, as a founder and in VC.

(Being wrong is fine. Being confidently wrong is dumb.)

> Many tech companies are started out of their founders apartments for essentially 0 startup cost

You’re mixing up fixed costs and capital. Both fixed and operating costs consume capital. (We call the latter working capital.)

(You may also be mixing up PP&E and capital.)

> a reason that tech founders get so much richer than founders in other industries and that reason is because the minimal capital requirements allow them to sell off so much less of the company before reaching massive scale

This is wrong. Obviously wrong.

Tech founders get richer because their companies get bigger. Apple, Tesla, Google and Saudi Aramco have massively different capital requirements. Their owners (and founders/founding lineages) are in the same ballpark.

Similarly, most family businesses never sell equity until they sell the business. And most tech founders don’t have a majority of equity after a couple rounds.

>Well-capitalized companies rejecting debt is more of a Silicon Valley outlier in the global economy.

IMO it's because CFO is treated as a second-tier C-suite role in Silicon Valley and a lot of the CFOs are completely substandard as a result.

A lot of CEO have the mentality that if the product and the tech works the money sorts itself out, so your CFO is already behind the CTO and the CPO.

It's so common that mismanagement of risks associated with it led to the fall of Silicon Valley Bank.

This Forbes article has a good overview: https://www.forbes.com/sites/amyfeldman/2023/03/19/silicon-v...

This looks like a case of the author doing their own research

Generous of you to call that drivel "analysis." Doesn't even bother to find out what the collateral for this loan is.

Reply on news.ycombinator.com