Why is a venture capital firm interested in Netflix?

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The year 2018 seems to be very far way, especially in today’s unsettled markets, but not for venture capitalist firms that have been used to making high-risk bets on start-ups. The latest bet from Technology Crossover Ventures (TCV), however, isn’t for a start-up, but for an established company,Netflix (NASDAQ:NFLX). TCV is buying $200 dollars worth of Netflix’s convertible bonds that pay no coupon, and can be converted to stock at $85.80 per share—roughly 15 percent above Netflix’s current market price.

The TCV bond purchase, however, comes with the condition that Netflix sells $200 worth of shares to third non-affiliated parties. What do these developments mean for investors?

Three things:

First, the issue of new shares is dilutive-that’s why Netflix’s shares were sharply lower in the after market hours, yesterday, and continue to trade lower this morning.

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