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Where do the startups burn all that cash? The first one mentioned burned $20 million without even finding a product-market fit, the second one burned a BILLION

by nikanj 3y ago

Where do the startups burn all that cash? The first one mentioned burned $20 million without even finding a product-market fit, the second one burned a BILLION in a year. A decent programmer costs you maybe $250/y in wages, tools, office rent etc. Not counting equity grants as those don’t affect cashflow. $20 million gets you some 80 man-years of solid senior-level programming. Where does all of that effort go? Just endless rewrites in different microservice frameworks? Or is the money burned on something else? Google ads? AWS bills?

anovikov 3y ago
Usually it's simply siphoned away. Sometimes by investors themselves in "advisory fees".
- ignoramous 3y ago
  In that case, the greater fools are LPs?
  - anovikov 3y ago
    Absolutely! LPs are the greatest fools ever! If stuff got to the IPO, it is usually not a complete bullshit. Very occasionally it is, but that's an exception, and someone who puts a big chunk of their nest egg into a single public stock can only blame themselves anyway. If stuff got acquired, usually the acquiring company more or less knows what they are doing too. But LPs are the royal bagholders indeed.
AndrewKemendo 3y ago
Advertising, Hiring and Rent Assuming you have some saas product with a bit of traction, you raise $100M. Why raise 100M? So you can DOMINATE growth within your vertical by hiring everyone away from their existing jobs, creating FOMO with marketing and then being acquired or doing some pump and dump like a SPAC - or maybe you can buy enough growth with other people's money to convince a friend of your Father (who is a banker) to underwrite your IPO cause your financials are slightly better than some shitcoin scam. You can get to $1M/mo pretty easily if you get a fancy workplace with all the perks, hire 20-30 people for 250k+ each and spend $100-200k a month on ads and rent. Remember, the whole goal of Venture and PE is to create a vehicle to dump a stock onto the public stock market at the highest delta between the IPO open price and their per-share common stock purchase price. That's it. Doesn't matter what you make or why, or if it's fully legal, or good or bad or whatever - makes literally no difference as long as you can convince a banker that they will make 10-1000X on that specific transaction as soon as possible.
kmeisthax 3y ago
Predatory pricing. The startup business model is to lock customers and suppliers into one another through your platform and then boil the frog with price increases and cost reductions. If you don't successfully lock people in you fail. If you do, you have a nearly unbreakable monopoly and your investors can suck money out of the business basically forever. Amazon, Google, and Apple are probably the most successful examples of this.
- nikanj 3y ago
  Which Apple product had this predatory pricing?

by nikanj 3y ago

anovikov 3y ago

Usually it's simply siphoned away. Sometimes by investors themselves in "advisory fees".

ignoramous 3y ago
In that case, the greater fools are LPs?
- anovikov 3y ago
  Absolutely! LPs are the greatest fools ever! If stuff got to the IPO, it is usually not a complete bullshit. Very occasionally it is, but that's an exception, and someone who puts a big chunk of their nest egg into a single public stock can only blame themselves anyway. If stuff got acquired, usually the acquiring company more or less knows what they are doing too. But LPs are the royal bagholders indeed.

AndrewKemendo 3y ago

Advertising, Hiring and Rent Assuming you have some saas product with a bit of traction, you raise $100M. Why raise 100M? So you can DOMINATE growth within your vertical by hiring everyone away from their existing jobs, creating FOMO with marketing and then being acquired or doing some pump and dump like a SPAC - or maybe you can buy enough growth with other people's money to convince a friend of your Father (who is a banker) to underwrite your IPO cause your financials are slightly better than some shitcoin scam. You can get to $1M/mo pretty easily if you get a fancy workplace with all the perks, hire 20-30 people for 250k+ each and spend $100-200k a month on ads and rent. Remember, the whole goal of Venture and PE is to create a vehicle to dump a stock onto the public stock market at the highest delta between the IPO open price and their per-share common stock purchase price. That's it. Doesn't matter what you make or why, or if it's fully legal, or good or bad or whatever - makes literally no difference as long as you can convince a banker that they will make 10-1000X on that specific transaction as soon as possible.

kmeisthax 3y ago

Predatory pricing. The startup business model is to lock customers and suppliers into one another through your platform and then boil the frog with price increases and cost reductions. If you don't successfully lock people in you fail. If you do, you have a nearly unbreakable monopoly and your investors can suck money out of the business basically forever. Amazon, Google, and Apple are probably the most successful examples of this.

nikanj 3y ago
Which Apple product had this predatory pricing?