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>>If they don't make back this money, it will represent a huge waste of resources. Hardly; it'll just be a transfer from VCs with too much money to everyone el
by patmcc 8y ago
>>If they don't make back this money, it will represent a huge waste of resources.
Hardly; it'll just be a transfer from VCs with too much money to everyone else in the economy. We could probably use more of that.
- soVeryTired 8y ago> Hardly; it'll just be a transfer from VCs with too much money to everyone else in the economy. We could probably use more of that. The VCs are gambling with someone else's money though. They raise money from institutional investors: pension funds and insurance companies. Ultimately the little guy will pay via government bailouts, pension reductions, and higher insurance premiums.
- Ericson2314 8y agoI get they raise others' money, but which pension funds are being into this high risk stuff?
- maxxxxx 8y agoQuite a few. Due to underfunding they are under a lot of pressure to produce higher returns so they invest into VC and private equity.
- bspn 8y agoAlmost all of them. They manage their portfolios like most other large fund managers albeit with a slight preference towards lower risk assets to ensure their short/medium term pension obligations are met, but they will almost always have an alternative investment bucket which VC will be a part of. They're also not interested in doing direct investments, so they'll diversify their early stage risk by investing in a couple of the more successful, established VC funds who spread the bets for them.
- notfromhere 8y agolots of them allocate a percentage to alternatives, and with a low-return environment, there was a push to keep doing it. However, there's also been a counter movement of pensions moving cash out of alternatives due to mediocre performance after fees are accounted for. It's a mixed bag really, a lot of it has to do with pensions sometimes being run by untrained elected officials, or them buying whatever bs a pe or hedge fund shop is selling them.
- HillaryBriss 8y agoIMO, pension governance would be a better place to reform policy, as opposed to at the central bank level. I mean, should economy-wide monetary policy be changed just because of the arguably foolish behavior of some VC funds in SV?
- pxue 8y agoAlso transfer of wealth from the drivers/delivery person..
- noobermin 8y agoMore like a transfer from VCs and from desperate gig workers in the form of cheap labor to founders who get to write medium posts about how entrepreneurial they are.
- fromthestart 8y agoGig workers do not transfer money to founders, and the vast majority of them are being profitably compensated for their labor.
- maxxxxx 8y agoVCs are not investing their own money.
- jamestimmins 8y agoIndeed, it's more likely that they're investing money from pension plans.
- noobermin 8y agoAlright, but the point is the transfer is to founders for the most part from somewhere.
- maxxxxx 8y agoWe just have to be clear that the "somewhere" is not the VCs. It may be your pension plan or your municipality.
- mathattack 8y agoAll it takes is one or two IPOs and the VCs have all been made whole.
- repsilat 8y agoIt's a lossy transfer, though. Profitable companies are typically win/win/win for customers, employees and investors. Unprofitable companies are win/win/lose at best. Take all the money the investor had lost, and if you had simply paid the employees the same for doing nothing and given the rest to the customers it would be a Pareto dominating outcome. The difference is destroyed wealth -- it's how much worse off society is because those investors didn't invest in profitable companies. Aside from the transfer of wealth, they really are setting fire to money.
- mlthoughts2018 8y agoThis assumes two things (at least) that are reasonably questionable: - that alternative investments with predictably better profitability characteristics existed - that customers would have preferred wealth transfer in the form of cash or financial assets instead of in the form of goods or services. For example, maybe I don’t mind forgoing a direct cash transfer from Lyft investors because what I really need is on-demand transportation. If, in response to my ride requests, they told me what the real fare would have been and transferred to my bank account the real fare minus what I would have been charged, I’d still be left without the ride I wanted (and the whole infrastructure and network of drivers to ensure future rides). It could be perfectly rational for me to value receiving that wealth transfer in the form of a ride and operated ride service more highly than receiving it as cash.
- repsilat 8y agoI fully agree with your first point. The investors aren't doing this out of the goodness of their hearts, they think it's positive expectation in the long run. The second point makes sense too. I think a weaker argument along those lines still works, though -- Something like, "If they couldn't become profitable by raising prices they're burning that money." Ford is a profitable company, and if they set their prices to zero they would deliver more value than their cash hoard before they went bankrupt. If Lyft upped their prices to juuust below your marginal utility for a ride and still weren't profitable, the Pareto argument (plus a penny) is pretty solid.
- maheart 8y agoI don't think it's that simple. The VC money itself comes from places like retirement funds. Also the mania surrounding startups and how much money could be made has had an effect on the public markets -- whether it's adding fuel to crypto, programmers in public company's asking for more money, or it's regular people buying FANG stocks hoping to make big money. I think in the end it'll be a lot of everyday people that lose money.