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Yeah but unlike a mortgage (secured against one static asset i.e. a house), the article assumes most of this debt will be issued against the strength and qualit

Yeah but unlike a mortgage (secured against one static asset i.e. a house), the article assumes most of this debt will be issued against the strength and quality of a company's various recurring revenue streams (even speculating that different components of this could be financed separately to try and account for the varied risk). Just need to make sure you don't end up with financers/banks/rating agencies colluding to bundle multiple companies together and sell tranches of the debt (all with a phony A+ rating) to investors/funds...

skybrian 7y ago
The question I have is how you know the customers won't cancel their subscriptions when the recession hits, or because a competitor provides the same service for less, or has better service?
- trhway 7y ago
  you can use CDS to insure performance of your high quality A+ "recurring revenue" bonds. It is pretty cheap for high quality A+ bonds. >>Just need to make sure you don't end up with financers/banks/rating agencies colluding to bundle multiple companies together and sell tranches of the debt (all with a phony A+ rating) to investors/funds... but that is exactly the point of the securitization and high skill in doing it which would allow to bring all those sweet pension fund money into play. "financers/banks/rating agencies colluding " - it like saying violin and piano players colluding in Metropolitan Opera performance.
  - quotemstr 7y ago
    No, that doesn't actually work, because decorrelated risks aren't. Did we learn nothing from 2008?
    - adele11 7y ago
      To push that point further, we had it easy in 2008 because governments used QE to push more money into the economy and prop up banks, but what if they can't grab that free lunch next time?
kevinventullo 7y ago
The article seems to advocate for exactly what you’re warning about: Why not go straight to securitizing senior tranches of your recurring revenue, and moving it off your balance sheet? ... (one paragraph later) ... On the other side, imagine how much investor interest you could get in a diverse basket of recurring revenue from, say, 10 different startups that’ve all raised from Tier 1 VCs. People talk about how great it would be to invest in a unicorn basket; this would probably be even better.
- omgwtfbyobbq 7y ago
  Except for the part about everyone colluding to get good risk ratings. If that collusion did happen, then yes, these would be the equivalent to MBS'. That can happen regardless of what is being securitized. It still wouldn't get to the level of the housing crisis until those securities were packaged into much larger CDOs and refinanced based on the fraudulent risk ratings.
marcosdumay 7y ago
> Just need to make sure you don't end up with financers/banks/rating agencies colluding to bundle multiple companies together and sell tranches of the debt (all with a phony A+ rating) to investors/funds... I imagine that's sarcastic, because that looks a lot like the description of a VC...
- nightski 7y ago
  Close, but loans have a fixed return where vc money has much more opportunity making it potentially with the higher risk.
  - marcosdumay 7y ago
    The largest difference should be that VCs are transparent about their risks. I don't think any investor expects not to lose nearly all their investment in the case of a bubble popping, what is different from people buying home loans. But it was a description of VCs.
buboard 7y ago
In a way houses were secured against the potential (recurring) rental yield they d make

skybrian 7y ago

The question I have is how you know the customers won't cancel their subscriptions when the recession hits, or because a competitor provides the same service for less, or has better service?

trhway 7y ago
you can use CDS to insure performance of your high quality A+ "recurring revenue" bonds. It is pretty cheap for high quality A+ bonds. >>Just need to make sure you don't end up with financers/banks/rating agencies colluding to bundle multiple companies together and sell tranches of the debt (all with a phony A+ rating) to investors/funds... but that is exactly the point of the securitization and high skill in doing it which would allow to bring all those sweet pension fund money into play. "financers/banks/rating agencies colluding " - it like saying violin and piano players colluding in Metropolitan Opera performance.
- quotemstr 7y ago
  No, that doesn't actually work, because decorrelated risks aren't. Did we learn nothing from 2008?
  - adele11 7y ago
    To push that point further, we had it easy in 2008 because governments used QE to push more money into the economy and prop up banks, but what if they can't grab that free lunch next time?

kevinventullo 7y ago

The article seems to advocate for exactly what you’re warning about: Why not go straight to securitizing senior tranches of your recurring revenue, and moving it off your balance sheet? ... (one paragraph later) ... On the other side, imagine how much investor interest you could get in a diverse basket of recurring revenue from, say, 10 different startups that’ve all raised from Tier 1 VCs. People talk about how great it would be to invest in a unicorn basket; this would probably be even better.

omgwtfbyobbq 7y ago
Except for the part about everyone colluding to get good risk ratings. If that collusion did happen, then yes, these would be the equivalent to MBS'. That can happen regardless of what is being securitized. It still wouldn't get to the level of the housing crisis until those securities were packaged into much larger CDOs and refinanced based on the fraudulent risk ratings.

marcosdumay 7y ago

> Just need to make sure you don't end up with financers/banks/rating agencies colluding to bundle multiple companies together and sell tranches of the debt (all with a phony A+ rating) to investors/funds... I imagine that's sarcastic, because that looks a lot like the description of a VC...

nightski 7y ago
Close, but loans have a fixed return where vc money has much more opportunity making it potentially with the higher risk.
- marcosdumay 7y ago
  The largest difference should be that VCs are transparent about their risks. I don't think any investor expects not to lose nearly all their investment in the case of a bubble popping, what is different from people buying home loans. But it was a description of VCs.

buboard 7y ago

In a way houses were secured against the potential (recurring) rental yield they d make