5 ms·

> How can it be that these companies can afford to buy companies at a premium, throw away massive parts of the value of the company It's almost like the lack o

by ethbro 7y ago

> How can it be that these companies can afford to buy companies at a premium, throw away massive parts of the value of the company It's almost like the lack of robust anti-trust prosecution by world governments have so enriched large, rent-seeking companies that they can literally afford to burn money and still come out ahead...

TomMarius 7y ago
The founders obviously wanted to exit
- paulmd 7y ago
  everyone wants to exit, the only question is how many zeroes it'll take for you to admit it. If I offered you a billion dollars for 100% of your startup today, would you really actually not exit? what's the old saw? "now we're just haggling over the price"... https://quoteinvestigator.com/2012/03/07/haggling/ https://quoteinvestigator.com/2012/03/07/haggling/
  - mrmonkeyman 7y ago
    I don't see Musk exiting for whatever amount of zeroes.
  - bordercases 7y ago
    Then how do we realign capital to stop keeping large loss-running companies or now slow-growing companies on life support so that basic innovations can still penetrate the market? IIRC Zuckerberg had the option to relinquish control of his company but other than taking that sweet sweet In-Q-Tel dollar still did his best to stay at the helm.
    - nicoburns 7y ago
      Agressively tax large organisations. There'd be a cost to that, but as this comment chain is discussing, there's also a cost to leaving them with the money and allowing them to use it to stifle innovation.
      - hug 7y ago
        Aggressive taxation is a prisoner's dilemma involving every government in the world. Good luck solving that problem. (Honestly, I wish good luck to anyone trying to solve it. Corporate tax is fucked.)
        bordercases 7y ago
        There are massive cash reserves that Google and IIRC Amazon have that are on the books let alone in off shore bank accounts. There is room for better tax policy here for sure. What should be more surprising though is how e.g. Google has ties to USG (through Schmidt) but can still escape harsher taxation. At the same time – maybe that's why they can escape harsher taxation... because USG benefits by other means.
      - bsder 7y ago
        I would instead move toward "aggressively tax passive investment above some limit." The issue isn't large amounts of money. The issue is large amounts of idle money.
        beatgammit 7y ago
        Is passive investment really idle? If you give it to a bank, they turn it into loans. If you invest in stocks, you're driving up the value of the shares so the company can sell at a premium to innovate. If you invest in corporate bonds, you're giving cash to companies to innovate (or at least helping increase the value of loans, which decreases future interest rates, encouraging innovation). The only way to make your money useless is to hold cash since it's designed to decrease in value over time. Pretty much everything else is promoting some kind of innovation/growth.
        bordercases 7y ago
        > If you invest in corporate bonds, you're giving cash to companies to innovate (or at least helping increase the value of loans, which decreases future interest rates, encouraging innovation). The point is that the way banks or other consolidated funds allocate this funding to corporate accounts, can be either inefficient or misanthropic if you take a certain stance toward innovation, namely that innovation isn't quite the same as rent capture and should be more than just efficiency for existing processes. Share price can decouple from the actual profitability of a corporation which gives the bank the option of either selling or providing a cash injection if the corporation risks solvency. And then if they run out of everyone else's cash they can ask the Fed to print more just so that they can continue the cycle of ownership for that corporation. But all that does for the economy on a whole is (a) raise the total rate of inflation for everyone, including people who aren't invested in the bank and (b) consolidate more and more assets into the holdings of these banks, and by association the actual wealth (while not actually creating anything that can give you more money than you put into it, otherwise you wouldn't need the cash injection). This is what 2008 gave us: a feedback loop where more growth of non-profitable companies needs more inflation, and more inflation requires more growth from your holdings. If Uber and Amazon are anything to go off of this strategy is actually preferred, probably due to the thesis that "software can eat the world" and you ought to lose as much cash as possible to "innovate" new interfaces to commodity industries at any cost, which essentially optimizes existing supply chains instead of finding use for novel technological capabilities. Maybe I have the wrong idea that innovation and profitability go hand in hand? Or that the tech industry should be about tech? This doesn't have anything to do with the Reserve but it's still an illustrative example: we've been here with WeWork where the business failed and yet the CEO was rewarded billions of dollars on exit. Who knows what he intends to do with that money now as a failed innovator. In hindsight maybe the reason that Adam was given such a large exit package was because of how he facilitated one of the fastest foreign asset takeovers of the last 40-50 years?
  - nraynaud 7y ago
    And in the end all those big companies become banks.
big_chungus 7y ago
On the other hand, preventing acquisitions reduces available exits and might discourage future innovation (which in turn might promote more trusts).
- bordercases 7y ago
  There needs to be a larger gradient of funding options than "Waste cash until unicorn" or "rent-seek until next bailout", and "dominate small-to-medium market niche" or "sponsor and penetrate next manufacturing commodity". We've seen so much wastage from the prevailing financial model in SV tech.
  - perl4ever 7y ago
    I don't understand. Your options are (1) be small, try to grow fast, (2) be big, (3) be small, don't try to grow fast, and I'm not sure what (4) means. What else is there?
    - bordercases 7y ago
      What behavior would prevent a technology like ultra-cheap phased arrays from being locked up due to the corporation seeing some potential in either the technology or the team to buy them, but then not giving both the leeway to develop the market for the technology further? In this specific case I guess we don't know the full picture of what Lattice Semiconductor intends to do, but there are many examples in software of startups getting acquihired and then the team dissolving into new projects that are more familiar or closely aligned with the pre-existing business model of the company. Since it's always possible to just turn the startup into a subsidiary I'm sometimes confused as to why this happens, unless if it's an issue of maybe brand dilution or the market opportunity being too small to be worth the overhead of keeping a separate entity tied to a larger one. Which is a part of why more opportunities for low-growth or long-tail companies would be important, since now in the case where the means for bringing the IP to the market are eliminated no one gets anything at all.
      - deleted 7y ago

by ethbro 7y ago

TomMarius 7y ago

The founders obviously wanted to exit

paulmd 7y ago
everyone wants to exit, the only question is how many zeroes it'll take for you to admit it. If I offered you a billion dollars for 100% of your startup today, would you really actually not exit? what's the old saw? "now we're just haggling over the price"... https://quoteinvestigator.com/2012/03/07/haggling/ https://quoteinvestigator.com/2012/03/07/haggling/
- mrmonkeyman 7y ago
  I don't see Musk exiting for whatever amount of zeroes.
- bordercases 7y ago
  Then how do we realign capital to stop keeping large loss-running companies or now slow-growing companies on life support so that basic innovations can still penetrate the market? IIRC Zuckerberg had the option to relinquish control of his company but other than taking that sweet sweet In-Q-Tel dollar still did his best to stay at the helm.
  - nicoburns 7y ago
    Agressively tax large organisations. There'd be a cost to that, but as this comment chain is discussing, there's also a cost to leaving them with the money and allowing them to use it to stifle innovation.
    - hug 7y ago
      Aggressive taxation is a prisoner's dilemma involving every government in the world. Good luck solving that problem. (Honestly, I wish good luck to anyone trying to solve it. Corporate tax is fucked.)
      - bordercases 7y ago
        There are massive cash reserves that Google and IIRC Amazon have that are on the books let alone in off shore bank accounts. There is room for better tax policy here for sure. What should be more surprising though is how e.g. Google has ties to USG (through Schmidt) but can still escape harsher taxation. At the same time – maybe that's why they can escape harsher taxation... because USG benefits by other means.
    - bsder 7y ago
      I would instead move toward "aggressively tax passive investment above some limit." The issue isn't large amounts of money. The issue is large amounts of idle money.
      - beatgammit 7y ago
        Is passive investment really idle? If you give it to a bank, they turn it into loans. If you invest in stocks, you're driving up the value of the shares so the company can sell at a premium to innovate. If you invest in corporate bonds, you're giving cash to companies to innovate (or at least helping increase the value of loans, which decreases future interest rates, encouraging innovation). The only way to make your money useless is to hold cash since it's designed to decrease in value over time. Pretty much everything else is promoting some kind of innovation/growth.
        bordercases 7y ago
        > If you invest in corporate bonds, you're giving cash to companies to innovate (or at least helping increase the value of loans, which decreases future interest rates, encouraging innovation). The point is that the way banks or other consolidated funds allocate this funding to corporate accounts, can be either inefficient or misanthropic if you take a certain stance toward innovation, namely that innovation isn't quite the same as rent capture and should be more than just efficiency for existing processes. Share price can decouple from the actual profitability of a corporation which gives the bank the option of either selling or providing a cash injection if the corporation risks solvency. And then if they run out of everyone else's cash they can ask the Fed to print more just so that they can continue the cycle of ownership for that corporation. But all that does for the economy on a whole is (a) raise the total rate of inflation for everyone, including people who aren't invested in the bank and (b) consolidate more and more assets into the holdings of these banks, and by association the actual wealth (while not actually creating anything that can give you more money than you put into it, otherwise you wouldn't need the cash injection). This is what 2008 gave us: a feedback loop where more growth of non-profitable companies needs more inflation, and more inflation requires more growth from your holdings. If Uber and Amazon are anything to go off of this strategy is actually preferred, probably due to the thesis that "software can eat the world" and you ought to lose as much cash as possible to "innovate" new interfaces to commodity industries at any cost, which essentially optimizes existing supply chains instead of finding use for novel technological capabilities. Maybe I have the wrong idea that innovation and profitability go hand in hand? Or that the tech industry should be about tech? This doesn't have anything to do with the Reserve but it's still an illustrative example: we've been here with WeWork where the business failed and yet the CEO was rewarded billions of dollars on exit. Who knows what he intends to do with that money now as a failed innovator. In hindsight maybe the reason that Adam was given such a large exit package was because of how he facilitated one of the fastest foreign asset takeovers of the last 40-50 years?
- nraynaud 7y ago
  And in the end all those big companies become banks.

big_chungus 7y ago

On the other hand, preventing acquisitions reduces available exits and might discourage future innovation (which in turn might promote more trusts).

bordercases 7y ago
There needs to be a larger gradient of funding options than "Waste cash until unicorn" or "rent-seek until next bailout", and "dominate small-to-medium market niche" or "sponsor and penetrate next manufacturing commodity". We've seen so much wastage from the prevailing financial model in SV tech.
- perl4ever 7y ago
  I don't understand. Your options are (1) be small, try to grow fast, (2) be big, (3) be small, don't try to grow fast, and I'm not sure what (4) means. What else is there?
  - bordercases 7y ago
    What behavior would prevent a technology like ultra-cheap phased arrays from being locked up due to the corporation seeing some potential in either the technology or the team to buy them, but then not giving both the leeway to develop the market for the technology further? In this specific case I guess we don't know the full picture of what Lattice Semiconductor intends to do, but there are many examples in software of startups getting acquihired and then the team dissolving into new projects that are more familiar or closely aligned with the pre-existing business model of the company. Since it's always possible to just turn the startup into a subsidiary I'm sometimes confused as to why this happens, unless if it's an issue of maybe brand dilution or the market opportunity being too small to be worth the overhead of keeping a separate entity tied to a larger one. Which is a part of why more opportunities for low-growth or long-tail companies would be important, since now in the case where the means for bringing the IP to the market are eliminated no one gets anything at all.
    - deleted 7y ago