[screwedup]

> the bank has outperformed bigger rivals, not just by lending to fledgling firms but by taking small ownership stakes in them to help offset their higher risks

Doesn't taking equity in a company that you've already loaned money to _increase_ your risk, not offset it? Am I not understanding what's going on?

[nikanj]

Your downside risk remains the same (lose loaned money), but your upside gains increase substantially (interest vs interest+acquisition/ipo income). Thus the risk becomes more tolerable.

[fraserharris]

The warrants are stock options - free to be given. SVB is not paying for them. It increases their potential upside beyond the interest rate. Across a portfolio it makes up for defaults.

[screwedup]

Unless your whole portfolio is correlated...

[seizethecheese]

Surely the quote is talking about average risk. Yeah, adding amy investment to a portfolio will increase overall risk, but debt in startups is a lot riskier than equity since most fail and debt caps your upside.