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Why do companies need outside investment? You present this as if it is self-evident. The reason companies need investors today is that all of the wealth is hoa

Why do companies need outside investment? You present this as if it is self-evident. The reason companies need investors today is that all of the wealth is hoarded by a select few that need to be entreated like feudal lords to get any land, machinery, IP, tools, etc. If the wealth were fairly distributed, a group of regular people would be enough to pool the necessary resources.

AnimalMuppet 7y ago
> Why do companies need outside investment? They don't always need it. Microsoft, for instance, didn't need much in the way of investment to start and grow. But some companies take more investment. Say it's the 1800s, and you want to build a railroad. You have to acquire a bunch of land, buy and lay rails, and buy engines and railroad cars - all before your first dollar of revenue. Where are you going to get that kind of money? You sell stock, so that anybody who has a few dollars can buy a small piece of the railroad. And why should they do so? Because they're going to get paid back, out of the profits the railroad earns (if it actually makes money). If those people don't have the chance of getting paid back from the profits, most of them won't buy stock. If they don't buy stock, then we wind up not having any railroads. That wouldn't have been good for the economy in the 1800s. Now, you could argue that investors could get paid back some of the profits for a limited amount, and then no further, and they would still invest. That's true, and it's the bond market rather than the stock market. But big new capital-intensive businesses typically financed themselves by stocks rather than bonds. There may be cultural reasons for that, but I think there are also solid financial reasons. Many new businesses fail. If I'm going to invest money, and there's a realistic chance that I'm going to lose all of my investment, then I need a reward that's enough to motivate me to take the risk. Bonds typically don't yield enough to compensate for that kind of risk - not even junk bonds.

AnimalMuppet 7y ago

> Why do companies need outside investment? They don't always need it. Microsoft, for instance, didn't need much in the way of investment to start and grow. But some companies take more investment. Say it's the 1800s, and you want to build a railroad. You have to acquire a bunch of land, buy and lay rails, and buy engines and railroad cars - all before your first dollar of revenue. Where are you going to get that kind of money? You sell stock, so that anybody who has a few dollars can buy a small piece of the railroad. And why should they do so? Because they're going to get paid back, out of the profits the railroad earns (if it actually makes money). If those people don't have the chance of getting paid back from the profits, most of them won't buy stock. If they don't buy stock, then we wind up not having any railroads. That wouldn't have been good for the economy in the 1800s. Now, you could argue that investors could get paid back some of the profits for a limited amount, and then no further, and they would still invest. That's true, and it's the bond market rather than the stock market. But big new capital-intensive businesses typically financed themselves by stocks rather than bonds. There may be cultural reasons for that, but I think there are also solid financial reasons. Many new businesses fail. If I'm going to invest money, and there's a realistic chance that I'm going to lose all of my investment, then I need a reward that's enough to motivate me to take the risk. Bonds typically don't yield enough to compensate for that kind of risk - not even junk bonds.