Between the Lines
Why You Should Learn to Stop Worrying and Love Technical Debt
Technical debt sounds scary, but it and its cousin, organizational debt, can be leveraging tools on your balance sheet if you know how to account for them
When you raise money, you get cash now in exchange for the promise to pay it back later. This is usually a formal promise. Borrow money, promise to pay it back with a set amount of interest; raise equity, promise to pay the investor some percentage of the proceeds when you get acquired or pay a dividend. Most of what we think of as finance is just elaborations on one of these two maneuvers: an interest rate or a share of ultimate proceeds, with some if/then statements for spice.
But some kinds of borrowing involve uncertain proceeds and uncertain costs. A few times in the past, there’s been a vogue for bonds that paid interest based on some variable, like the price of oil or the number of shares traded on the New York Stock Exchange. These are fun to think about. (They make sense to the seller — I know why an oil driller would want to issue a bond whose interest payments dropped by half if WTI dropped a similar amount, but I don’t know why the lender would prefer that bond to oil futures.)
