> Modeling investing as a loan made to a company where the company can choose to not return money at all comes with all sorts of nice properties.
Debt and equity are both modes of investment. We have different words for them because they mean different things. You are not Modeling investing as a loan, you are describing investing in equity.
My point is, I don't believe they are offering the loan because the company is in financial trouble (due to the hold). I believe they are offering the loan because the company meets certain requirements in terms of transaction volume.
Companies can reach the required transaction volume without having holds on their account.
Investment rounds aren't loans, they're... Investments. You're selling them a stake in the company, not borrowing money. I'm sure there are exceptions but that's generally how it works.
>Lending money to a business is essentially the same as investing in it anyway. If the business defaults the result is the same.
It is far more common for a business when times are hard to stop (or never start) paying out to its equity investors (dividends) while still servicing its debt. It is not "essentially the same as investing".
> - If I keep the stock, and borrow against it, I pay no taxes, but I do pay finance fees (e.g. interest). The finance fees work out to less than taxes.
I'm not following the whole lifecycle. You borrow against your stock, spend that money, and then repay the loan using stock? Without having technically sold the stock?
However everything the company does is seen in terms of investment... you invest in machinery and employees so that you can get more back than what you put in.
When you loan from VCs, you can't tell them "you only get back what I loaned". They want a cut of the result.
If you borrow something from the company for your own use, you are in a very real way making use of their investment. Since assumption is you didn't ask, why do you assume they want to give a bank-kind loan, not a VC-kind loan? (In fact, what we are discussing here are employee contracts where it is stipulated that such loans are of the VC variety... If you want to borrow under other terms, make a contract for it...)
You don't have an investor, you have a creditor (might I say: a loanshark). Investing means there's risk of not getting your money back, loaning means you get your money back no matter what.
You don’t need profits to ‘reinvest’, to finance the expansion of your company’s workforce or output, as the recent history of Apple and most other corporations has amply demonstrated.
How do you reinvest without profits, and what is the Apple example? Apple makes a profit, and reinvests... confusing. Is he suggesting a loan, perhaps?
> The Company has from time to time issued nonrecourse loans to certain employees for the exercise of stock options or for personal use. As of December 31, 2017 and 2018, the total outstanding employee loan balances were $21 million and $16 million, respectively. A total of 16 million and 10 million shares were pledged as collateral to secure the loans as of December 31, 2017 and 2018, respectively.
Is loaning 20 million dollars to employees for personal use as dodgy as it sounds?
Purchasing equity is the moral approach. This means that the investor also bears the risk. If the company succeeds, the investor makes money, if it doesn't, then he lost money.
> but it's a little odd to see this comment on a forum hosted...
Why? They're not lending money, they're investing, two very different things.
It is a loan then, not an investment.
reply