While startup founders and investors have cheered the move, it has also raised some questions. What Agarwal seems to be doing is putting his existing shares as collateral to buy more shares. He is then putting those new shares to buy even more shares. As an industry source told TechCrunch, “it’s like getting a new
credit card to pay for the older one.”
In simpler words: “You build a three story house but to run it you need money. So you sell the house and just have a bathroom in your name. You want to buy the entire ground floor. So you put the one bathroom as collateral and raise enough money to buy a room with an attached bathroom. How? The bathroom’s worth can’t be worth a room and a bathroom. Then you put the new room with an attached bathroom as a collateral and buy the living room and kitchen. And then you own the entire ground floor. But in reality, you still only own the bathroom. And you hope that one day, the bathroom’s worth would be enough to pay for the entire floor,” the aforementioned industry source said.
