Name Media Doesn’t Need the Money
Wow.. What “credit crunch”? In the midst of what some describe as a credit crisis and currency crisis (happening at the same time), Our friends at NameMedia.com have just secured a new 5 year credit facility on as yet unspecified terms. Release states they can use the facility to “”repay all obligations outstanding under the Company’s prior credit facility. The remainder of the facility is available for general corporate purposes, including acquisitions.”" This certainly indicates they don’t “need” to do their IPO in order to raise cash for the repayment of debt. They just want to do the IPO. That’s a much better position to be in if equities get ugly. The liquidity Gods are smiling on Waltham today. Congrats to these folks for hitching their wagons to the right space.
I believe this can be viewed as negative as well. Investors want liquidity. This credit facility does not give them liquidity. Yes, the fact that they securedreflects that the fundamental business is sound, but, their may be speed bumps ahead – i.e. RECESSION.
My take is that this was their second option behind an IPO. Why woould I say that? Well because by filing their S1 (IPO docs) they have exposed the entire business for the world to see. The third option would have been to go do another round of financing, but, that would bring additional dilution to the existing shareholders and employees.
I hate to say it BUT we are in a recession. The economic data ALWAYS lags by 6 months or so. THIS SUCKS FOR ALL!!!!
All debt eventually gets repaid or the borrower files for bankruptcy. Very few businesses who are constantly seeking new capital do well in the long run. That is a fact. Borrowing money does not add assets to any balance sheet…whether that be a business balance sheet or a personal one.
Microsoft has never had any debt. Warren Buffett has never had debt. Profits were being made from day one in Microsoft’s case, as well as Buffett’s.
I am sure they will find a greater fool to bail them out someday. Great businesses don’t need partners….and they certainly don’t need other people’s money. Smoke in mirrors businesses often look for partners with money.
The decent thing to do would be to build a business by making profits and re-investing the profits in building the business. But that takes effort and commitment.
Dan,
The requirements for capital are dependant on two factors.
One is viability of the Business Model. If you have a model that is capable of rendering returns well above even userous levels of interest rates, any level of debt is justifiable to enable the wealth generation provided cash-flow can be maintained.
The other factor is the amount of capital the other shareholders have available.
These two factors are largely independant of one another. Many very successful entrepreneurs start with almost zero capital. Their business plans are obviously highly viable and can justify the debt.
I would not like to comment on Namemedia specifically, as I am not a great believer in building business that rely on the performance of what domainers refer to as the Long-Tail. My personal view is that the potential here is being greatly over-estimated. However, their viability should be judged on the validity of their business model rather on the equity that owners are able to contribute.
Borrowing can make a lot of sense. You either have to borrow or bring in other investors. The latter inevitably dilutes you holding. Where investors want a lot of the cake for a comparatively small injection of capital, which is almost always the case with VC, such support is often more damaging than borrowing against your credit card.
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