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Debt and VC are just sides of the same (multi-sided) coin. The money has to come from somewhere - domestic savings, commercial profit or sovereign wealth. The

Debt and VC are just sides of the same (multi-sided) coin. The money has to come from somewhere - domestic savings, commercial profit or sovereign wealth. The unicorn phenomenon is easier to explain this way - if you are already a company that can consume huge amounts of debt (you have a business model, product and route to market and just need to replicate) then you used to have one choice - take on debt. Now, where the returns on money as debt is so low, the money may choose to be VC just to gets return. As such the only likely way "debt is coming" is if interest rates climb, giving money an alternative to VC. However what drives global interest rates as very little to do with tech sector (I think). So - yes huge tech plays are going to become more and more common because software is eating the world and we are basically going to replace all our business has governmental processes with new software ones. Those will need huge investment - but whether that is debt or VCor something inbetween (looking at you government bonds) - is more likely to be a function of interest rates than anything else. My prediction - the next YCombinator will take VC sized money and deploy it at bank level scale - small and medium sized companies at non-unicorn stages, because with good software and models it will be feasible to deploy at smaller levels. Debt may not be coming so soon

lmm 7y ago
> As such the only likely way "debt is coming" is if interest rates climb, giving money an alternative to VC. Surely that's backwards: a lot of money really wants to be invested in debt, and is only doing VC because the returns to debt investing are so bad. Offer those investors a better alternative - comparable returns to a second-tier VC fund (which is not actually that hard), with something they can pretend is a security backed by something (they want to believe, you don't have to give them much), and they'll beat a path to your door. Much easier to offer market-beating "startup user bonds" while interest rates are low than when (if) some decent bond investing opportunities come back.
- lifeisstillgood 7y ago
  I think we are saying the same thing - at the moment money chooses to be VC funds because normal debt has such low interest rates. Yes I absolutely think there will be shake ups in VC market meaning smaller more frequent and earlier investment (taking the place of what used to be bank business loans). And I think a lot of money will want to do that. But both of these are not debt - and until savings rates globally change then there will be plenty of supply of money and interest rates will remain low. Given that savings rates generally correlate to countries growing in wealth then SEAsia and Africa suggest there will be a long while before interest rates tip up structurally
  - lmm 7y ago
    > I think we are saying the same thing - at the moment money chooses to be VC funds because normal debt has such low interest rates. > Yes I absolutely think there will be shake ups in VC market meaning smaller more frequent and earlier investment (taking the place of what used to be bank business loans). And I think a lot of money will want to do that. > But both of these are not debt - and until savings rates globally change then there will be plenty of supply of money and interest rates will remain low. Low interest rates on normal debt are exactly what creates an opportunity for a novel kind of debt, which is what the article is talking about. Right now there's a lot of money in VC equity that would rather be in any kind of decent-yield debt - even novel debt backed by unconventional collateral. As and when interest rates rise, all that money will go back into conventional debt and the opportunity will go away.
- hcknwscommenter 7y ago
  I'm not sure entering the bond market is possible. These "startup user bonds" would be unrated, beyond junk, accessible only to accredited investors, etc. The debt would probably take the form of some type of a CLO or ETN wrapper? I'm just speculating here. Anyone with better insight?
  - jacques_chester 7y ago
    That's still an enormous potential pool of capital that's currently making very little.
- Blackstone4 7y ago
  Rates are so low on high yield bonds that investors are pouring money into private credit which is invested by alternative asset managers like Blackstone/GSO

lmm 7y ago

> As such the only likely way "debt is coming" is if interest rates climb, giving money an alternative to VC. Surely that's backwards: a lot of money really wants to be invested in debt, and is only doing VC because the returns to debt investing are so bad. Offer those investors a better alternative - comparable returns to a second-tier VC fund (which is not actually that hard), with something they can pretend is a security backed by something (they want to believe, you don't have to give them much), and they'll beat a path to your door. Much easier to offer market-beating "startup user bonds" while interest rates are low than when (if) some decent bond investing opportunities come back.

lifeisstillgood 7y ago
I think we are saying the same thing - at the moment money chooses to be VC funds because normal debt has such low interest rates. Yes I absolutely think there will be shake ups in VC market meaning smaller more frequent and earlier investment (taking the place of what used to be bank business loans). And I think a lot of money will want to do that. But both of these are not debt - and until savings rates globally change then there will be plenty of supply of money and interest rates will remain low. Given that savings rates generally correlate to countries growing in wealth then SEAsia and Africa suggest there will be a long while before interest rates tip up structurally
- lmm 7y ago
  > I think we are saying the same thing - at the moment money chooses to be VC funds because normal debt has such low interest rates. > Yes I absolutely think there will be shake ups in VC market meaning smaller more frequent and earlier investment (taking the place of what used to be bank business loans). And I think a lot of money will want to do that. > But both of these are not debt - and until savings rates globally change then there will be plenty of supply of money and interest rates will remain low. Low interest rates on normal debt are exactly what creates an opportunity for a novel kind of debt, which is what the article is talking about. Right now there's a lot of money in VC equity that would rather be in any kind of decent-yield debt - even novel debt backed by unconventional collateral. As and when interest rates rise, all that money will go back into conventional debt and the opportunity will go away.
hcknwscommenter 7y ago
I'm not sure entering the bond market is possible. These "startup user bonds" would be unrated, beyond junk, accessible only to accredited investors, etc. The debt would probably take the form of some type of a CLO or ETN wrapper? I'm just speculating here. Anyone with better insight?
- jacques_chester 7y ago
  That's still an enormous potential pool of capital that's currently making very little.
Blackstone4 7y ago
Rates are so low on high yield bonds that investors are pouring money into private credit which is invested by alternative asset managers like Blackstone/GSO