[ttul]

Business owner here. First, let me dispel the myth that business owners are wealthy. All of my friends from school have more liquid assets than I do. I am utterly broke unless you count for the paper wealth of my company shares.

When COVID hit, within a week we had customers dropping out of our sales funnel. Half of our expected revenue growth disappeared as customers decided to reduce risk and stick with existing solutions. This is what happens when the market goes “risk off”.

My company, like most, is leveraged. If I don’t earn positive cash flow, covenants on my debt will trigger a default, instantly ruining the firm. One default cascades to all the facilities, because that’s how debt works.

So, if I need to get to cash flow neutral, I am going to lay people off. I have no other option. It’s either that, or ruin.

This is why the government is supporting businesses by effectively becoming a lender of last resort. By tapping government loans, I can maintain my employees while we wait out what will probably be a short period of downturn. The money I have been offered is three year. Three years from now, we have either figured this thing out or we are living in caves. I’ll pay back the loan and my employees will keep their jobs. That’s how this works.

If I could provide feedback to policy makers: government should get something in return for the largesse. A small stake in each company, for instance, that we have the option of buying back at cost later. Because if society is supporting my business, society should have a stake in its recovery. I have not seen that happening anywhere.

[pdeuchler]

If a 50% drop in expected revenue _growth_ causes you to default on your debt you are either a startup that had trouble raising money, in which case now you know that you do not have a viable business plan, or you are running a completely unsustainable business that only existed because of easy access to cheap debt the past couple of years.

[ttul]

Common misconception. It’s not uncommon for companies to use leverage to fuel growth. High yield venture debt is often tied to growth metrics. It’s not a mistake to operate a company using venture debt. In a highly competitive market, if you don’t lever up, your competitors will eat your market.

[mst]

Something I often explain to customers (shadow.cat is a consultancy so we usually don't arrive until several years into a company's life) is that, yes, they've accumulated a shitload of technical debt, and yes, I get they're embarassed about it, but if you don't cut some corners in the early days your competitors who do will drive you out of business before it ever matters.

Then I politely point out to them that they're still in business, and their codebase is doing something sufficiently useful to customers that it's making enough money to be able to support a budget for us to help, so clearly they did something right and I'm not going to hold against them the choices without which they'd've never become a customer anyway.

(anybody doing similar work please feel free to steal my spiel, it's so nice to get the in-house developers to realise they're not going to be judged because it makes it much easier to get on with the part where you work with them to unfuck the codebase :)

[pdeuchler]

> It’s not uncommon for companies to use leverage to fuel growth. High yield venture debt is often tied to growth metrics.

This is, of course, exactly my point. "High yield venture debt" only exists due to absurdly low interest rates and an abundance of capital being driven out of public markets and into private ones. Now that the free lunch is over do not be surprised that your lenders come calling now that your "high yield" (read: risky) loan is no longer profitable under current market conditions.

> In a highly competitive market, if you don’t lever up, your competitors will eat your market.

I.E. When capital is cheap and abundant it is possible to burn cash on an unsustainable business plan for marketshare, but when the entire market itself rapidly shrinks your business plan is horribly unviable.

[mam2]

Honestly most companies, not startups only, run on the idea that if you don't have debt, you're doing something wrong. It's not entirely false when the economy is neutral at least.

[ttul]

Ultimately, the explosion in venture debt products was probably an off shoot of quantitative easing and the general long term fall in interest rates. Investors seeking a yield from regular lending have not been getting it. The present financial crisis will test the hypothesis that the yield on all this venture debt was adequate to cover the risk of default.

[tarsinge]

It’s totally viable to have a no growth business. Trustful clients, steady income, no debts. I’m lucky but for now there is nearly no impact on my web agency. And even if activity dropped to 0 we have cash for a few months to pay salaries. I always aimed for a rock solid balance sheet, and a bailout of our over leveraged competitors would be very unfair.

[TearsInTheRain]

Well you see it was a mistake to lever up because now your company's failed. Bailing out companies that got leveraged up to their eyeballs just rewards companies that take as much risk as possible. Does that sound healthy to you?

[ttul]

Welcome to business. This is how it works.

[jessaustin]

ISTM Congress just decided that. In the absence of their recent bailout decision, business would work in some other fashion, which many taxpayers would perceive as more fair.

[TearsInTheRain]

It only works like that because we dont let you fail. We should change that.

[me_me_me]

So the collective owes you a bailout, so you can gamble some more?

[mistermann]

> It’s not uncommon for companies to use leverage to fuel growth.

Seems true.

> High yield venture debt is often tied to growth metrics.

Seems true.

> It’s not a mistake to operate a company using venture debt.

Is this true, or might it be more accurate that particular people, depending on their situation, would like to have us believe it is true?

If a company is operating using venture debt, or operating in any arbitrary fashion for that matter, and then a disruptive incident occurs and the company's finances are insufficient to sustain itself and must shut down (in turn losing at least a significant portion of the initial investment), is it accurate to say that "no mistakes have been made"?

If the business in question then goes hat in hand to the public (whose constituents are often lectured to "save money for a rainy day", and who also have serious financial issues of their own), asking for a bailout with this story as a justification of sorts, does this not seem a little bit absurd?

Am I looking at this the wrong way, because it kind of seems counter-intuitive to me?

> In a highly competitive market, if you don’t lever up, your competitors will eat your market.

Seems true.

[ttul]

Companies aren’t going hat-in-hand. Governments are rightly bridging companies if they agree to not fire people.

[mistermann]

You can assign whatever label you want to it, but it's odd how difficult to agree on what is happening here, or if anything of significance is even happening at all.

Is there a flow of funds from government to one or more corporations involved in the scenario being discussed? YES/NO?

Is there a risk that the government may not get all of this money back? YES/NO?

Have we seen a scenario resembling this before? YES/NO?

Do (or has there even been instances in the past) American citizens in any way have the right or privilege to use the full powers of the United States Government to forcibly transfer money from the bank accounts of corporations into those of citizens, despite the corporations being guilty of no fault? YES/NO?

Is there a broadly held consensus that all parties involved in this scenario are being "plausibly fairly" compensated/punished for the role they have played in the events leading up to this scenario, and does the American public have the right to view 100% of the documentation that substantiates that claim? YES/NO?

Does the American public have the right to view 100% of the documentation involved in this scenario, so that they can confirm for themselves that not one single cent is being misallocated? YES/NO?

If an omniscient third party (literally, a God) was evaluating this scenario, are we absolutely certain that they would be unable to find the slightest fault, however small, in this scenario? YES/NO?

[ttul]

Okay, you sound like a southern preacher. You want to save the economy? It’s going to take some broken eggs. Not all pennies will be accountably allocated. Some bad companies will survive. Some people will make money when they shouldn’t have.

But broadly speaking, if governments don’t move fast, there won’t be an economy in six months’ time.

[edanm]

> or you are running a completely unsustainable business that only existed because of easy access to cheap debt the past couple of years.

Or you planned for revenue growth by doing things like buying extra equipment, hiring more workers, increasing office space, etc.

When operating a business, you have to plan for growth, or lack of growth, or even for revenue to fall. And your planning often costs money, or commitments to pay money. If reality suddenly doesn't match your planning, then you are in trouble.

And I totally don't get why people are so negative on debt. If I'm running a relatively new company, and realize I have a good product that is going to increase in demand next year, but I don't have the money to build out a new factory - I can get a loan. If I happen to be, say, Apple, I don't necessarily need a loan - I can finance it myself using cash reserves from previous years. Why is it better to live in a world where the only companies who can build up for future growth like this are huge companies like Apple?

[pdeuchler]

Uhhhhhh, are you talking about bank term loans? Bank term loans have repayment periods over decades (usually), and use the physical assets as collateral. Not what OP is talking about.

[goatherders]

Not true at all

[speleding]

If you pay your employees and you pay taxes then saving your company is already a worthwhile investment for the taxpayer. Governments are typically not very good at owning companies.

[ttul]

They don’t have to own the whole thing. However at some point owning a small non voting stake... I just don’t see the downside. You want cheap money? Uncle Sam is going on your cap table.

[mst]

I'd been thinking about this.

My thought was that rather than going straight onto the cap table, the government would get a sort of option set where either you pay back the loan with interest or if for whatever reason you need to defer/reduce payments then they get the shares. Not honestly for your benefit so much as because accounting for and disposing of that shareholding is not something the government is set up to do efficiently so avoiding them needing to as much as possible seems sane.

(also a business owner here, but a purely bootstrapped one hence my vagueness around the terminology - but hopefully the idea makes some sort of sense and if it actually sounds useful then somebody who does grok the cap table side of things can flesh it out ;)

[Ericson2314]

The government could push for policies policy, like workers boards, with it's equity.

We should nationalize and then spin off as coops. Something needs to break the anti-democratic workplace.

Or I'll put it this way: The government policy should be that capitalists might rather go bankrupt than be bailed out with concessions.

[the8472]

> Half of our expected revenue growth

I am guessing that restaurants would be pretty happy if that's all they were facing.

[ttul]

Restaurants are levered differently.

[travisporter]

You may be a good CEO but is there any clause that prevents employers from firing everyone and taking the loan for themselves?

[ttul]

Some governments are wisely tying their bridge loans to requirements that companies not do layoffs.

[mistermann]

> A small stake in each company, for instance, that we have the option of buying back at cost later. Because if society is supporting my business, society should have a stake in its recovery.

If businesses can buy it back at cost later, is this not a textbook example of moral hazard?

Now I in no way believe you, or business people like you, are responsible for this debacle any more than the average person on the street - rather, it is these gigantic but incredibly fragile corporations that have optimized for profitability at the expense of stability/resiliency who have put the entire country in an extremely precarious place. Again. 12 years after the last one, which a lot of "non-expert" people saw coming, while the "expert" economists and policy makers poo-poo'd these warnings, patting these people on the head as if they were children who are unable to think on the same level as them. Technically, they are right, in a way - us regular folks truly do not think on the same level as them, in that we tend to not posses the magnitude of arrogance and self-confidence it requires to drive straight into a clearly visible wall at top speed, while ignoring all warnings.

Will we learn anything this time? I predict we won't, and I speculate that the core reason is that we have a fundamental problem in our culture. Our cultural axioms (the way we believe reality is, the way we believe society and commerce should be structured, etc) contain imperfections. Until we are willing to consider this possibility, and then proceed with a serious[1] post incident analysis, with a goal of honestly identifying shortcomings and setting out to fix them for good, I'm afraid we will repeat this whole process over again within 20 years.

Think about the magnitude of the aggregate intelligence that exists within the HN community, with broad expertise across many domains. And not just HN, but all the various communities out there. Imagine if these "non-experts" were to one day say: "We have had enough. Let's stop fighting among each other, put our heads together, and start writing policy papers of how this should be done, go through a standard process of review, criticism, refinement, etc (just like we do on any engineering project), and then publish and publicize the results of this work widely. Let's use our combined minds, and voices, to once and for all put some detailed and implementable ideas out into the public domain, and shine a light on them for all to see. Then, when "the experts" come up with their self-serving plan, we can start a process of compare and contrast, pointing out in extreme clarity, in words understandable to both layman and domain expert[2], exactly where they have hidden their backdoors."

Granted this is no small task, but is it impossible? And if we don't do it, what are the consequences of that choice (because doing nothing is a choice).

[1] By serious, I mean: no restrictions on access to information (and therefore no restrictions on who can get involved in an analysis - "many eyes"), no restrictions on speech, no single entity (corporations, lobbyists, mainstream media) dictating the narrative to citizens). The post 2008 analysis is not what I would call serious. A more appropriate word for that would be "theater", not unlike many other rituals our society engages in.

[2] Ideally, the information would be presented in various levels of detail, catered to different demographics, not that dissimilar to those who do contribute documentation to open source projects.

[ttul]

I hope that governments make some adjustments to tax policy to incentivize some industry-wide de-risking.

[mistermann]

I hope that we some day have competent, completely arms length people perform a proper systems analysis and produce competent, evidence-based recommendations, and then we implement those (because done correctly, these recommendations should be as close to the gold standard as humanity is currently capable of), plus, and extra say 0.5% skim off the top that goes into a kitty for a rainy day.

Why this seems like too much to ask (or even consider!) is another one of those things that I "just don't get".

[ttul]

That rainy day kitty is known as taxation.

[mistermann]

Taxation is the skim. A secure (protected from "borrowing, just this one time, I promise, don't worry I'll put this fancy piece of paper in the box as a replacement") kitty containing these funds, is something else entirely.

[ttul]

Norway provides ample guidance here. They have what, a trillion dollar sovereign wealth fund, invested exclusively in non-Norwegian assets, locked away for the rainy day when oil runs out or becomes valueless. That day may now be upon them.