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.
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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.
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(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.)
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“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.
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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.
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End of conversation
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I think about it in terms of competitive advantage. Some firms have a competitive advantage in manufacturing, others in marketing, and others still in cost of capital. Securitization let’s each firm specialize and exploit their individual advantage.
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They want access to that specific security so they can diversify their holdings or hedge.. alot of securitization is actually done for risk purposes as well as getting access to certain parts of the whole asset that wasn't accessible before.
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