4 ms·

That's insane -what's the magic event people believe will turn those losses around?

mrweasel 4y ago
It's kinda fascinating really. We had a client that had only ever lost money. Their idea was pretty good, they had what I'd call a working prototype and paying customers. Our CEO happened to know one of the investors, and chatted with him about the investment and the numbers we did on a whiteboard. Even if they grew their business with 10 times the number of customers, and each customer ramped up their usage 10 times it would take 10 - 12 years to make back the money that had already been spend. That was assuming no new investments and zero cost in those 10 to 12 years. The idea that this may not have been the best investment in history was more or less brushed, as the stock price would surely rise. VC funding is weird.
- runnerup 4y ago
  Even if the already-invested money can’t be recouped, marginal additional investment could theoretically be with favorable (LIFO) terms offered typically offered to later investment. So sure, acknowledge a bad $300 million bet, but then throw your next $50 million at the same bet if it looks like the best place to put a marginal $50 million. I don’t always think investors are doing this rationally - sunk cost fallacy / gamblers paradox / greater fool theory / FOMO all play a part, but also recognize that lots of these super large investments are led by a small team using lots of other peoples money so there are ways for the decision-makers to come out closer to breakeven if much of the pot is lost. Also with potential IPO’s and sky high rate of valuation growth over the past decade, the “greater fool theory” isn’t necessarily an irrational motivation to invest. Not all smart investments are value-based.
  - lumost 4y ago
    A company built to operate as a 100 billion dollar behemoth can rarely transition to a 1 billion dollar success without lots of pain. To make this transition, your going to need to crush a lot of dreams and projects. Why would the result not be a hollowed out hulk of a company?
- sys_64738 4y ago
  It depends on the exit strategy. The technology will sometimes be scooped up by a big fish and take the key employees with it. When folk invest VC cash then they are sprinkling it amongst many projects that will have most typically fail. A Couple making it will give them the VC investment reward.
kzrdude 4y ago
Monopolizing it's market? It looked they were nearly there for payment processing in swedish online shopping.
vadym909 4y ago
Most point to Amazon as the example of it will turn around once they start to dominate their space
VLM 4y ago
A classic argument is future sales are equivalent enough to be an asset. So as long as your balance sheet including future sales is growing faster than your income sheet is shrinking, its "OK". There's a lot of assuming spherical cows going on. If the bean counters like the result when the average customer is milked for six years until having to replace them, that's great, unless customer service is so awful the average customer is gone in six months, or a competitor comes along in two years and wipes you out, market changes evaporate the revenue stream in five years, etc. BTW this is the housing bubble in a nutshell. Lets say you buy a shack for half a mil at 6% for 30 years which from memory is almost exactly $3K/month. Not because you would, but because these are engineering estimates with very round numbers that are easy to memorize. Anyway, you'll spend 30 years in a row with a negative income statement of losing $36K per year on that shack. Actually you'll lose a ton more money due to maint, taxes, insurance, PMI, remodeling, appliances, whatever else. But who cares about the income statement, because if the total losses over 30 years are a bit over a million, if on the balance sheet the asset goes up to five million because interest rates only go down and real estate only goes up (until it doesn't, LOL) over the same time frame you can cash out for four million net gain? Of course if the shack only goes up to a million because its not in a bubble area like Arizona or whatever, you've not quite broken even, or god forbid if it only goes up to 3/4 of a mil you've lost quite a large life changing sum of money.

It's kinda fascinating really. We had a client that had only ever lost money. Their idea was pretty good, they had what I'd call a working prototype and paying customers. Our CEO happened to know one of the investors, and chatted with him about the investment and the numbers we did on a whiteboard. Even if they grew their business with 10 times the number of customers, and each customer ramped up their usage 10 times it would take 10 - 12 years to make back the money that had already been spend. That was assuming no new investments and zero cost in those 10 to 12 years. The idea that this may not have been the best investment in history was more or less brushed, as the stock price would surely rise. VC funding is weird.

runnerup 4y ago
Even if the already-invested money can’t be recouped, marginal additional investment could theoretically be with favorable (LIFO) terms offered typically offered to later investment. So sure, acknowledge a bad $300 million bet, but then throw your next $50 million at the same bet if it looks like the best place to put a marginal $50 million. I don’t always think investors are doing this rationally - sunk cost fallacy / gamblers paradox / greater fool theory / FOMO all play a part, but also recognize that lots of these super large investments are led by a small team using lots of other peoples money so there are ways for the decision-makers to come out closer to breakeven if much of the pot is lost. Also with potential IPO’s and sky high rate of valuation growth over the past decade, the “greater fool theory” isn’t necessarily an irrational motivation to invest. Not all smart investments are value-based.
- lumost 4y ago
  A company built to operate as a 100 billion dollar behemoth can rarely transition to a 1 billion dollar success without lots of pain. To make this transition, your going to need to crush a lot of dreams and projects. Why would the result not be a hollowed out hulk of a company?
sys_64738 4y ago
It depends on the exit strategy. The technology will sometimes be scooped up by a big fish and take the key employees with it. When folk invest VC cash then they are sprinkling it amongst many projects that will have most typically fail. A Couple making it will give them the VC investment reward.

kzrdude 4y ago

Monopolizing it's market? It looked they were nearly there for payment processing in swedish online shopping.

vadym909 4y ago

Most point to Amazon as the example of it will turn around once they start to dominate their space

VLM 4y ago

A classic argument is future sales are equivalent enough to be an asset. So as long as your balance sheet including future sales is growing faster than your income sheet is shrinking, its "OK". There's a lot of assuming spherical cows going on. If the bean counters like the result when the average customer is milked for six years until having to replace them, that's great, unless customer service is so awful the average customer is gone in six months, or a competitor comes along in two years and wipes you out, market changes evaporate the revenue stream in five years, etc. BTW this is the housing bubble in a nutshell. Lets say you buy a shack for half a mil at 6% for 30 years which from memory is almost exactly $3K/month. Not because you would, but because these are engineering estimates with very round numbers that are easy to memorize. Anyway, you'll spend 30 years in a row with a negative income statement of losing $36K per year on that shack. Actually you'll lose a ton more money due to maint, taxes, insurance, PMI, remodeling, appliances, whatever else. But who cares about the income statement, because if the total losses over 30 years are a bit over a million, if on the balance sheet the asset goes up to five million because interest rates only go down and real estate only goes up (until it doesn't, LOL) over the same time frame you can cash out for four million net gain? Of course if the shack only goes up to a million because its not in a bubble area like Arizona or whatever, you've not quite broken even, or god forbid if it only goes up to 3/4 of a mil you've lost quite a large life changing sum of money.