6 ms·

An ironic aspect of financing (from personal loans to multi-billion dollar deals) is that you can get it as long as you don't need it. Google or FB would have

An ironic aspect of financing (from personal loans to multi-billion dollar deals) is that you can get it as long as you don't need it. Google or FB would have no problem at all spending a measly $4.5bn on a project that potentially has real impact on their primary business (search,ads), or even secondary one (android, etc.). Their only problem is finding a way to spend it. This is because Google makes software, and software doesn't really require much capital. The only thing they could realistically spend that kind of money on is m&a. So, because they don't need it, google has many times that sum sitting around and could probably raise many times that sum again. Because the only thing they could spend it on is m&a. If they do, the money goes to pay founders/investors in the target company....and back to to the "available to invest" pile of money collectively accumulating in software giants' balance sheets, VC & PE funds and such. What rarely happens is actual spending. If Tesla or another manufacturing company gets ahold of $5bn, they will actually spend it on parts, machinery and such. The current money market is so loopy. All it can do is move money around. It can't spend it. It's like a real estate market in dense places like NY, but worse. Lots of money flies around, but it goes between one pocket and another. Very little goes towards building buildings. An investment in the gigafactory would be more like investing in a new city. It actually results in buildings, but isn't going to be attractive to investors, because... because it isn't a zero sum game. Other people can build a building too. There's no reason for your building to be worth more than it cost you to build.

countryqt30 8y ago
It just demonstrates that Google/FB/[SOFTWARE] is a wonderful business, and Tesla/Cars/[CAPITAL INTENSIVE] is a waste of money. The market realizes this pretty well, so most money goes into developing and funding new software companies.
- gpresot 8y ago
  Both have pros and cons. Capital intensive businesses, once running, have their own barriers to entry (moats) "literally" built in: all those capital requirements help keep new entrants away. Capital-light business (and I am not sure the infrastructure investments to run a cloud service platform are so small), need to build this moat either by having access to consumer (data, network effects) and/or by keeping ahead of competition with constant innovation.
  - dalbasal 8y ago
    In practice though, msft, Google & FB have much better moats, via network/platform effects.
    - gpresot 8y ago
      There are oil refineries that are decades old and still generate plenty of cash for their owners (granted, they need maintenance investments, but the bulk of the investment is certainly at the beginning), the same goes for cargo ships etc... While FB and GOOG need to come up with a new product or service every 6 months to keep those customers (see SNAP and their allegedly better fit with younger users). And MSFT wasn't in a very healthy situation just a few years ago. I have of course generalised and things are never clear-cut: servicing the high debt used to finance initial capital is also quite risky.
- close04 8y ago
  > you can get it as long as you don't need it There's another explanation for the statement above. The more you need the money, the grimmer the outlook is from the lender's perspective. So you're much more likely to secure capital/loan when you are already financially secure then when you are extended almost to the limit. And this is true regardless of the domain. You give the money to make money so you're looking more at "sure wins" and less at risky bets.
- dalbasal 8y ago
  Their pnl can tell you that. They certainly are wonderful businesses for investors. The only problem is that they don't need investors' money. All investor demand does is enrich previous investors. It doesn't enable/change anything that outside exists outside of bank accounts. Investment in a manufacturing company like Tesla enables more cars to be built, technology to progress and probably lots of 2nd order effects via their supply chain.
- _fizz_buzz_ 8y ago
  And by investing in more and more new software companies. The likelihood of them succeeding goes down. Roughly until an investment in a software company is as valuable as a hardware company.
cinquemb 8y ago
>An investment in the gigafactory would be more like investing in a new city. Like a Chinese ghost city?
navigatesol 8y ago
>An investment in the gigafactory would be more like investing in a new city. It actually results in buildings, but isn't going to be attractive to investors, because... because it isn't a zero sum game. Sorry, but businesses raise money for capital projects all the time. Tesla, itself, has raised billions to get to where they are today. Maybe the Money People are smarter than you think, and are looking at the state of Tesla's business and saying, "if we lend them money for a factory they might not even require, will we ever be paid back?"
- dalbasal 8y ago
  Of course it's related to the business proposition of investing in those companies. I never suggested otherwise. I'm talking about the consequences of the dynamic. Most of the money invested in tech (excl early VC money, which is a small portion) very little is "true" capital investment. It's like the difference between investing in swappable corn notes and investing in seed corn which is going to be planted. One results in more corn. The other might be more profitable, depending on the year.
agumonkey 8y ago
> you can get it as long as you don't need it read this in a poetry book about love. Many things in life are ultra hard to get when you're further away from it.. an hommage to the non linear multivariate nature of life maybe
- jokowueu 8y ago
  Name of book?
  - agumonkey 8y ago
    No idea at all, it was at someone's parents house, I just read one page and that sentence stuck in my mind because it felt insanely unfair.
    - itronitron 8y ago
      reminds me of John Giorno's poetry, which I highly recommend ... 'I don't need it, I don't want it, and you cheated me out of it!' https://youtu.be/q2aE8UdMBzE https://youtu.be/q2aE8UdMBzE
      - phjesusthatguy3 8y ago
        The one vinyl record I've owned that I actually miss[0] is a double-LP of John Giorno, William S. Burroughs and Laurie Anderson doing their thing(s). They each had one side and the fourth had three side-by-side tracks, one for each of them, and you got what you got when you put the needle down. It died in the hot trunk of my car one day. EDIT: I lost it a long time ago. It appears to include the piece you were referring to! [0]https://en.wikipedia.org/wiki/You%27re_the_Guy_I_Want_to_Share_My_Money_With https://en.wikipedia.org/wiki/You%27re_the_Guy_I_Want_to_Sha...
- mikorym 8y ago
  There is a potential workaround if it makes you feel better. Get the thing in loan twice: that way you don't need any particular of the two. Somewhat unfortunately, that latter statement is just as troublesome and can translate as "I am using you, x, as a way to make y feel jealous."
jimmy1 8y ago
> All it can do is move money around. Not to be pedantic, but this is exactly how the economy works. One person's spending is another person's income and vice versa. An alternative definition of an economy is "the way money moves around"
- vidanay 8y ago
  The difference is that historically there was some tangible and durable result from that transaction. A house was built, a ship was commissioned, a food was grown. In the last 50 years the intangible transaction has become prevalent so there is no obvious and lasting product of that movement of money from one pocket to another.
  - appleiigs 8y ago
    There is still a house and ship being built at the end of it. Money and markets are just an abstraction of the physical work. Just like when i write in python - at the end, there is physical work being done in memory and cpu hardware. Money and markets allocate capital and no economist suggests otherwise.
    - JetSpiegel 8y ago
      Derivatives, securities and other finacial "products" have no physical backing, they are purely abstract concepts. They don't even exist on paper now, just intangible bytes.
      - appleiigs 8y ago
        Derivatives are derived from something... they have a notional, underlying, or delivery.
  - bilbo0s 8y ago
    Why is this bad now? To be clear, the American economy has always had a "Big 5" of Real Estate, Finance and Insurance, State and Local Government, Health Care, and then Durable Goods manufacture. That hasn't really changed. (At most maybe Lawyering and IT combined could knock off Finance? I seriously doubt either Legal or Tech could knock off even Durable Goods on their own.) Point is, we've been operating like this for at least a century and a half now. Why are the big intangible transfers in Finance and Insurance, or Health Care, or even sometimes Real Estate* all of a sudden a problem now? * Finance, Insurance, Health Care, and Real Estate are the intangible transactions that still dominate the economy today. Transactions for legal services or computer/tech type services could not even approach any of the Big 5 in terms of scale. Again, maybe if you combined them? But even then, I doubt they would be number one. There's no way they challenge Real Estate.
golergka 8y ago
> If they do, the money goes to pay founders/investors in the target company And when Tesla spends it, the money goes to workers that perform the physical labour. These situations differ in amount of people getting rewarded and in how long these chains are, but in the end, you give money to people for exchange for something valuable they created.
- dalbasal 8y ago
  They differ (at least that's what I was argueing) in terms of what happens with the money the moment after the investment happens. If Google takes $5bn (imagine they don't have it) from a firm/fund to buy a software company, that money goes to founders and investors. In practice, the money went out of a an investment pool and into another one, staying in the macro-pool. What happens when tesla takes $5bn is it comes out of the fund and goes to pay parts manufacturers, toolers, builders.. IE, it is spent in the "real" (in the sense that economists use th term) economy. One affects the ethereal world of bank balances and stock valuations. The other affects wages and production of goods and services.
Vinnl 8y ago
> m&a To clarify, this is an acronym for mergers and acquisitions. That wasn't immediately clear to me.
patentatt 8y ago
My 2 cents: the only categories of “real” value are human life (measured in time, i.e., wages) and non-renewable resources (land, minerals, etc.) Building buildings takes a lot of both, so it is a “real” expenditure. Software is more-or-less a service good that only transfers money from one party to another. An implication of the US divesting it’s manufacturing capacity to China is that there’s a lot more “just” moving money around and a lot less building “real” value.
lotsofpulp 8y ago
I don't see the irony. The lender wishes to purchases a future stream of payments, and is willing to accept a certain amount of risk proportionate to the interest rate they are willing to lend at. The borrower wishes to purchase cash now, in exchange for paying it back in the future plus some amount of interest. The only question is whether or not a lender is willing to sell their cash now at an interest rate that the borrower finds agreeable. Sometimes, if you really have a bad track record, you can't get any financing, but in most cases financing is available, just not at an interest rate the borrower is willing to pay. The borrower also has the option of obtaining financing via selling equity. Bottom line, financing is available at terms that have positive expected value for the person with the cash, not based on how much the borrower needs it or not, as with all other vendor - consumer relationships.
nabla9 8y ago
The article tells different story. Why you think it's wrong?
naveen99 8y ago
> An ironic aspect of financing (from personal loans to multi-billion dollar deals) is that you can get it as long as you don't need it. It has nothing to do with need, just ability to pay back. It's mostly about leverage. When you have no money, leverage won't get you very far because 2 x 0 is 0. But if you have some money, you can leverage it, 2 x 1 = 2. If you have a billion dollars, and try to over leverage by taking a 100 billion dollar loan, they won't let you do it, unless you are powerful enough to create a world financial crisis.
yeahitslikethat 8y ago
Maybe Google could spend that money figuring out how to stop making money on pirated content instead of saying the problem is too hard because it happens too much.
shereadsthenews 8y ago
Google is one of the world’s largest makers of computers and network equipment and spent $26 billion on capital in 2018, more than ten times what Tesla invested in capital. Your entire analysis here is completely backwards.
- dalbasal 8y ago
  Google is a far larger company than Tesla.
api 8y ago
It makes me wonder how "real" our GDP and other paper money measures are. If the money can't be spent on actual stuff, does it actually exist?
petra 8y ago
Much of that money goes to pay software engineers. And they pay rent or purchase homes, like everybody else.
foobarbazetc 8y ago
> An ironic aspect of financing (from personal loans to multi-billion dollar deals) is that you can get it as long as you don't need it. Truer words have never been spoken. I remember when our startup had to fight to get a $5k credit card from Chase. Now our Amex LoC is like 750k @ 6% and it’s useless.
coolio2657 8y ago
dalbasal, I feel like you're quietly sitting on a fascinating analysis of a facet of the modern economy. Mind sharing the sources of your knowledge so I can learn about it myself, either in the form of books, or articles?

countryqt30 8y ago

It just demonstrates that Google/FB/[SOFTWARE] is a wonderful business, and Tesla/Cars/[CAPITAL INTENSIVE] is a waste of money. The market realizes this pretty well, so most money goes into developing and funding new software companies.

gpresot 8y ago
Both have pros and cons. Capital intensive businesses, once running, have their own barriers to entry (moats) "literally" built in: all those capital requirements help keep new entrants away. Capital-light business (and I am not sure the infrastructure investments to run a cloud service platform are so small), need to build this moat either by having access to consumer (data, network effects) and/or by keeping ahead of competition with constant innovation.
- dalbasal 8y ago
  In practice though, msft, Google & FB have much better moats, via network/platform effects.
  - gpresot 8y ago
    There are oil refineries that are decades old and still generate plenty of cash for their owners (granted, they need maintenance investments, but the bulk of the investment is certainly at the beginning), the same goes for cargo ships etc... While FB and GOOG need to come up with a new product or service every 6 months to keep those customers (see SNAP and their allegedly better fit with younger users). And MSFT wasn't in a very healthy situation just a few years ago. I have of course generalised and things are never clear-cut: servicing the high debt used to finance initial capital is also quite risky.
close04 8y ago
> you can get it as long as you don't need it There's another explanation for the statement above. The more you need the money, the grimmer the outlook is from the lender's perspective. So you're much more likely to secure capital/loan when you are already financially secure then when you are extended almost to the limit. And this is true regardless of the domain. You give the money to make money so you're looking more at "sure wins" and less at risky bets.
dalbasal 8y ago
Their pnl can tell you that. They certainly are wonderful businesses for investors. The only problem is that they don't need investors' money. All investor demand does is enrich previous investors. It doesn't enable/change anything that outside exists outside of bank accounts. Investment in a manufacturing company like Tesla enables more cars to be built, technology to progress and probably lots of 2nd order effects via their supply chain.
_fizz_buzz_ 8y ago
And by investing in more and more new software companies. The likelihood of them succeeding goes down. Roughly until an investment in a software company is as valuable as a hardware company.

cinquemb 8y ago

>An investment in the gigafactory would be more like investing in a new city. Like a Chinese ghost city?

navigatesol 8y ago

>An investment in the gigafactory would be more like investing in a new city. It actually results in buildings, but isn't going to be attractive to investors, because... because it isn't a zero sum game. Sorry, but businesses raise money for capital projects all the time. Tesla, itself, has raised billions to get to where they are today. Maybe the Money People are smarter than you think, and are looking at the state of Tesla's business and saying, "if we lend them money for a factory they might not even require, will we ever be paid back?"

dalbasal 8y ago
Of course it's related to the business proposition of investing in those companies. I never suggested otherwise. I'm talking about the consequences of the dynamic. Most of the money invested in tech (excl early VC money, which is a small portion) very little is "true" capital investment. It's like the difference between investing in swappable corn notes and investing in seed corn which is going to be planted. One results in more corn. The other might be more profitable, depending on the year.

agumonkey 8y ago

> you can get it as long as you don't need it read this in a poetry book about love. Many things in life are ultra hard to get when you're further away from it.. an hommage to the non linear multivariate nature of life maybe

jokowueu 8y ago
Name of book?
- agumonkey 8y ago
  No idea at all, it was at someone's parents house, I just read one page and that sentence stuck in my mind because it felt insanely unfair.
  - itronitron 8y ago
    reminds me of John Giorno's poetry, which I highly recommend ... 'I don't need it, I don't want it, and you cheated me out of it!' https://youtu.be/q2aE8UdMBzE https://youtu.be/q2aE8UdMBzE
    - phjesusthatguy3 8y ago
      The one vinyl record I've owned that I actually miss[0] is a double-LP of John Giorno, William S. Burroughs and Laurie Anderson doing their thing(s). They each had one side and the fourth had three side-by-side tracks, one for each of them, and you got what you got when you put the needle down. It died in the hot trunk of my car one day. EDIT: I lost it a long time ago. It appears to include the piece you were referring to! [0]https://en.wikipedia.org/wiki/You%27re_the_Guy_I_Want_to_Share_My_Money_With https://en.wikipedia.org/wiki/You%27re_the_Guy_I_Want_to_Sha...
mikorym 8y ago
There is a potential workaround if it makes you feel better. Get the thing in loan twice: that way you don't need any particular of the two. Somewhat unfortunately, that latter statement is just as troublesome and can translate as "I am using you, x, as a way to make y feel jealous."

jimmy1 8y ago

> All it can do is move money around. Not to be pedantic, but this is exactly how the economy works. One person's spending is another person's income and vice versa. An alternative definition of an economy is "the way money moves around"

vidanay 8y ago
The difference is that historically there was some tangible and durable result from that transaction. A house was built, a ship was commissioned, a food was grown. In the last 50 years the intangible transaction has become prevalent so there is no obvious and lasting product of that movement of money from one pocket to another.
- appleiigs 8y ago
  There is still a house and ship being built at the end of it. Money and markets are just an abstraction of the physical work. Just like when i write in python - at the end, there is physical work being done in memory and cpu hardware. Money and markets allocate capital and no economist suggests otherwise.
  - JetSpiegel 8y ago
    Derivatives, securities and other finacial "products" have no physical backing, they are purely abstract concepts. They don't even exist on paper now, just intangible bytes.
    - appleiigs 8y ago
      Derivatives are derived from something... they have a notional, underlying, or delivery.
- bilbo0s 8y ago
  Why is this bad now? To be clear, the American economy has always had a "Big 5" of Real Estate, Finance and Insurance, State and Local Government, Health Care, and then Durable Goods manufacture. That hasn't really changed. (At most maybe Lawyering and IT combined could knock off Finance? I seriously doubt either Legal or Tech could knock off even Durable Goods on their own.) Point is, we've been operating like this for at least a century and a half now. Why are the big intangible transfers in Finance and Insurance, or Health Care, or even sometimes Real Estate* all of a sudden a problem now? * Finance, Insurance, Health Care, and Real Estate are the intangible transactions that still dominate the economy today. Transactions for legal services or computer/tech type services could not even approach any of the Big 5 in terms of scale. Again, maybe if you combined them? But even then, I doubt they would be number one. There's no way they challenge Real Estate.

golergka 8y ago

> If they do, the money goes to pay founders/investors in the target company And when Tesla spends it, the money goes to workers that perform the physical labour. These situations differ in amount of people getting rewarded and in how long these chains are, but in the end, you give money to people for exchange for something valuable they created.

dalbasal 8y ago
They differ (at least that's what I was argueing) in terms of what happens with the money the moment after the investment happens. If Google takes $5bn (imagine they don't have it) from a firm/fund to buy a software company, that money goes to founders and investors. In practice, the money went out of a an investment pool and into another one, staying in the macro-pool. What happens when tesla takes $5bn is it comes out of the fund and goes to pay parts manufacturers, toolers, builders.. IE, it is spent in the "real" (in the sense that economists use th term) economy. One affects the ethereal world of bank balances and stock valuations. The other affects wages and production of goods and services.

Vinnl 8y ago

> m&a To clarify, this is an acronym for mergers and acquisitions. That wasn't immediately clear to me.

patentatt 8y ago

My 2 cents: the only categories of “real” value are human life (measured in time, i.e., wages) and non-renewable resources (land, minerals, etc.) Building buildings takes a lot of both, so it is a “real” expenditure. Software is more-or-less a service good that only transfers money from one party to another. An implication of the US divesting it’s manufacturing capacity to China is that there’s a lot more “just” moving money around and a lot less building “real” value.

lotsofpulp 8y ago

I don't see the irony. The lender wishes to purchases a future stream of payments, and is willing to accept a certain amount of risk proportionate to the interest rate they are willing to lend at. The borrower wishes to purchase cash now, in exchange for paying it back in the future plus some amount of interest. The only question is whether or not a lender is willing to sell their cash now at an interest rate that the borrower finds agreeable. Sometimes, if you really have a bad track record, you can't get any financing, but in most cases financing is available, just not at an interest rate the borrower is willing to pay. The borrower also has the option of obtaining financing via selling equity. Bottom line, financing is available at terms that have positive expected value for the person with the cash, not based on how much the borrower needs it or not, as with all other vendor - consumer relationships.

nabla9 8y ago

The article tells different story. Why you think it's wrong?

naveen99 8y ago

> An ironic aspect of financing (from personal loans to multi-billion dollar deals) is that you can get it as long as you don't need it. It has nothing to do with need, just ability to pay back. It's mostly about leverage. When you have no money, leverage won't get you very far because 2 x 0 is 0. But if you have some money, you can leverage it, 2 x 1 = 2. If you have a billion dollars, and try to over leverage by taking a 100 billion dollar loan, they won't let you do it, unless you are powerful enough to create a world financial crisis.

yeahitslikethat 8y ago

Maybe Google could spend that money figuring out how to stop making money on pirated content instead of saying the problem is too hard because it happens too much.

shereadsthenews 8y ago

Google is one of the world’s largest makers of computers and network equipment and spent $26 billion on capital in 2018, more than ten times what Tesla invested in capital. Your entire analysis here is completely backwards.

dalbasal 8y ago
Google is a far larger company than Tesla.

api 8y ago

It makes me wonder how "real" our GDP and other paper money measures are. If the money can't be spent on actual stuff, does it actually exist?

petra 8y ago

Much of that money goes to pay software engineers. And they pay rent or purchase homes, like everybody else.

foobarbazetc 8y ago

> An ironic aspect of financing (from personal loans to multi-billion dollar deals) is that you can get it as long as you don't need it. Truer words have never been spoken. I remember when our startup had to fight to get a $5k credit card from Chase. Now our Amex LoC is like 750k @ 6% and it’s useless.

coolio2657 8y ago

dalbasal, I feel like you're quietly sitting on a fascinating analysis of a facet of the modern economy. Mind sharing the sources of your knowledge so I can learn about it myself, either in the form of books, or articles?