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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(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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I don’t understand this. How would Dropbox sell its cashflow; and how is that different from issuing ordinary stock securities and providing dividends?
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You can imagine an instrument which says “Here is a sample of 1,000 FooCorp accounts of the August 2019 vintage. FooCorp will continue servicing these accounts indefinitely, collecting a 20% servicing fee, and remit all other payments on a monthly basis to the holder of this.”
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Dropbox could issue bonds if it wanted to, right?
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not sure if spending all the proceeds on share buybacks would be enough to convince current equity holders it’s a good idea ?
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Never considered this before!
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Follow on thought: by securitizing subscription cash flows, the GAAP P&L is better aligned to real value, and therefore (maybe?) more valuable in public markets.
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If you're thinking in perpetuity, I'd say Dropbox is the correct owner Otherwise it'll incentivize employees to do the bare minimum of the SLA they have with that theoretical YC company
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