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> the bank has outperformed bigger rivals, not just by lending to fledgling firms but by taking small ownership stakes in them to help offset their higher risks
by screwedup 11y ago
> the bank has outperformed bigger rivals, not just by lending to fledgling firms but by taking small ownership stakes in them to help offset their higher risks
Doesn't taking equity in a company that you've already loaned money to _increase_ your risk, not offset it? Am I not understanding what's going on?
- nikanj 11y agoYour downside risk remains the same (lose loaned money), but your upside gains increase substantially (interest vs interest+acquisition/ipo income). Thus the risk becomes more tolerable.
- seizethecheese 11y agoSurely the quote is talking about average risk. Yeah, adding amy investment to a portfolio will increase overall risk, but debt in startups is a lot riskier than equity since most fail and debt caps your upside.
- fraserharris 11y agoThe warrants are stock options - free to be given. SVB is not paying for them. It increases their potential upside beyond the interest rate. Across a portfolio it makes up for defaults.
- screwedup 11y agoUnless your whole portfolio is correlated...