A fundamental insight about finance: Suppose the bank has $250k and you want to buy a house costing that. The bank, by convincing you to take out a mortgage, ends the day *materially* better off than it started, because your promise to repay is worth *a lot* more than $250k.
-
-
They want the mortgage more than the bank does, in same way that you want the car more than Toyota does, and so the market “should” arrange for the mortgage to move over to their books and the car to move to your garage.
Show this thread -
This logic is almost certain to hit SaaS companies eventually, by the way. It’s not obvious that Dropbox is the best owner of the stream of cash flows from me to Dropbox.
Show this thread -
(I once asked a very savvy person “Why hasn’t this happened already?” and his answer was that the boom market in SaaS equity makes securitizing SaaS payments unnecessary and potentially a bit negative.)
Show this thread -
“What do you mean, negative?” Well a bank is a pot of money and an operating business, right? A SaaS company is a smaller pot of money, an operating business, and a large number of probable future cash flows. You might be able to efficiently value those cash flows directly.
Show this thread -
But effectively the equity markets let you sell someone very attractive cash flows bundled with an operating business that maaaaaaaaybe they’re paying quite a lot of money for relative to similar software factories.
Show this thread
End of conversation
New conversation -
-
-
Have you read Sowell’s “Knowledge and Decisions”? You would love it, he lays these things out in such a straightforward way
-
Oh nice, will read.
End of conversation
New conversation -
Loading seems to be taking a while.
Twitter may be over capacity or experiencing a momentary hiccup. Try again or visit Twitter Status for more information.