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Companies being devalued is not news. It happens on the stock market everyday. For companies that rely on outside investment to survive however it can become a

Companies being devalued is not news. It happens on the stock market everyday. For companies that rely on outside investment to survive however it can become a slide to oblivion. If the company itself is profitable, then typically it can continue. There's no interest rate on VC investment, and if profitable it can run forever. Customers, employees, users and so on are all fine. Investors? Well, they're potentially getting some returns through dividends, but its minor and not what they were chasing. Of course the VC investment model is high risk. That's kinda the point. It's a bet on IPO or (valuable) acquisition. Most companies end up as neither. Will this affect new VC funds in the future? Maybe in the short term. But there are still enough IPOs (like SpaceX now) and still enough greedy people willing to play the lottery. Sure the absolute amount of VC money may come down, but I don't think the model is going away. Indeed it may start to lead to saner valuations along the way.

promptsaredead 4mo ago
Agreed. It's gonna be space, then robotics, then quantum robotics, then quantum solar nuclear robotics. I think it depends way more on where and how much the wealth is concentrated than anything else
nradov 4mo ago
Even if a company is profitable, depending on voting interest and board control the investors may be able to force a sale.
- bruce511 4mo ago
  True. Assuming there are buyers. And I'm not sure why buyers would pay more than value. In other words, the sale wouldn't really achieve anything other than lock in the capital write-off. The return would be trivially small.
  - lelanthran 3mo ago
    The controlling voters don't really need to force a sale; they could force a wind-up of the business. "Sure, we invested $100m, but you are still only breaking even. May as well close up shop, sell the data for as much as we can get and split the proceeds amongst us investors" is just as possible.
  - nradov 3mo ago
    The point isn't necessarily to get buyers to pay more than fair market value. Most VC firms run a series of separate funds, each with a target date to return cash to limited partners. So at some point the VCs need liquidity even if the valuation isn't great. This is a normal and expected part of the business model. In some cases a VC can kind of "extend and pretend" by getting one of their other portfolio companies to do the acquisition in an all stock deal.
tqi 4mo ago
> Of course the VC investment model is high risk. That's kinda the point. It's a bet on IPO or (valuable) acquisition. Most companies end up as neither. Cynically, I wonder how much of the insane (even in the moment) valuations were driven by VC firms trying to commit capital so they could collect management fees?
- brazzy 4mo ago
  Ohh, you're more cynical than me! My idea was that it's mostly early investors using FOMO to fleece later investors.
- deleted 4mo ago
  [deleted]
- wildzzz 3mo ago
  That post about GenieDB the other day has certainly opened my eyes to the sausage making behind the scenes.
Forgeties79 4mo ago
> Indeed it may start to lead to saner valuations along the way. SpaceX’s valuation + “data centers in space” being taken as a serious pitch leads me to think it’s only getting worse.
ignoramous 4mo ago
> Companies being devalued is not news. It happens on the stock market everyday TFA points specifically at "recent funds" that have underperformed public markets. More recently launched funds have been returning markedly less money to investors than those of earlier vintages, according to the World Economic Forum. They have also underperformed the S&P 500 by a wide mark, particularly those that did not invest in a small club of artificial-intelligence superstars, says Mr Cohan. > Of course the VC investment model is high risk. Power law at play, apparently: High risk with high rewards only for the top 5%. ... already, just 5% of them produce 90% of its profits.
- ghaff 3mo ago
  And VC even historically has not performed especially well. And just to take an anecdotal example, I have a friend who did some angel investing. He still does a bit on companies he believes in but admits he's have done a lot better putting a lot of the money into NASDAQ or some other index, much less some of the big tech firms.
marcus_holmes 4mo ago
> There's no interest rate on VC investment, and if profitable it can run forever. This isn't how VC funding works. The fund has a time limit, usually ten years, and has to wrap up and pay back in that time limit. If your company is not profitable in that time limit, tough. The VC will exercise whatever rights they have and pull whatever they can out of it.
- danmaz74 4mo ago
  Typically, what can they pull out? don't they only have equity?
  - _fw 4mo ago
    They might not easily be able to cash out, but they often have more options than people realise. VCs will sometimes invest ‘convertible notes’ which start as debt and “convert” into equity in favourable scenarios. ‘Swamp’ and ‘drag’ clauses are also commmon: if a management team/CEO doesn’t meet their goals as set by the board (like give investors a meaningful exit) then investors can take over and replace that team, or force a sale. Illiquid private equity in an early stage business, especially one that isnt growing, is hard to get rid of. That’s why investors derisk with terms that massively favour them at the expense of the business they invest in.
    - marcus_holmes 3mo ago
      In our case, the VC's merged us with our biggest competitor and then sold that to a PE fund. Nothing we could do about it. I took voluntary redundancy and got out asap.
  - jmalicki 3mo ago
    I've been in a startup that was operating at ~breakeven and did layoffs to actually be profitable, and at ~10 years in the VCs forced an acquihire since they wanted out.
jjav 4mo ago
> If the company itself is profitable, then typically it can continue. I only wish, but rarely. This is one of the great tragedies of the grow at all cost system. There have been so many great profitable companies, where the product is great, customers love it, employees love it, everyone is happy.. except it's not growing fast enough to satisfy the leeches so it gets destroyed. As a society we should be supportive of small companies that make a great product that everyone loves, pays good salaries and makes a profit. The more of those, the merrier. But no, unless growth is on the hockeystick curve, private equity will destroy it sooner or later.
- kasey_junk 3mo ago
  The reason hockey stick growth is required is because the “leeches” are putting up the capital to build the profitable company and if the profits dont significantly outpace the risk free rate it’s a very bad investment. The founders and employees and even the customers are accruing all the benefits of that capital so of course they are happy. How else do you propose funding the quite expensive and risky enterprises that venture backs? Taxes? Paying employees less before profitability? Charging early customers a lot more? Clearly you can see the downsides of those approaches.
  - TheOtherHobbes 3mo ago
    Growth != Profits I would propose not funding them at all, because so much of the system has turned into outright grift, with wildly implausible "companies" receiving brain-melting sums so investors can pay themselves huge fees. The companies all do things like "Pitch decks as a service" or "Coworker cafes in space" or "Fusion permanently two years from now, until we spend the money on drugs then pivot to military contracting" or "AI-powered gig economy pet sitters for the Bay Area". There's a lot of happiness around, but there are also more useful things everyone could be doing.
    - kasey_junk 3mo ago
      That’s already an option? You can get small business loans, bootstrap, get grants etc that don’t require massive growth. You can found or work for a company like this anytime you like. But the “leeches” the op mentions are a voluntary funding mechanism for a particular kind of company. If you found or work for one of those the trade off is clear. You can’t have it both ways though. As an employee you can’t live off the largesse of investors as you build the business and then not expect them to want an elevated return on that risk.

promptsaredead 4mo ago

Agreed. It's gonna be space, then robotics, then quantum robotics, then quantum solar nuclear robotics. I think it depends way more on where and how much the wealth is concentrated than anything else

nradov 4mo ago

Even if a company is profitable, depending on voting interest and board control the investors may be able to force a sale.

bruce511 4mo ago
True. Assuming there are buyers. And I'm not sure why buyers would pay more than value. In other words, the sale wouldn't really achieve anything other than lock in the capital write-off. The return would be trivially small.
- lelanthran 3mo ago
  The controlling voters don't really need to force a sale; they could force a wind-up of the business. "Sure, we invested $100m, but you are still only breaking even. May as well close up shop, sell the data for as much as we can get and split the proceeds amongst us investors" is just as possible.
- nradov 3mo ago
  The point isn't necessarily to get buyers to pay more than fair market value. Most VC firms run a series of separate funds, each with a target date to return cash to limited partners. So at some point the VCs need liquidity even if the valuation isn't great. This is a normal and expected part of the business model. In some cases a VC can kind of "extend and pretend" by getting one of their other portfolio companies to do the acquisition in an all stock deal.

tqi 4mo ago

> Of course the VC investment model is high risk. That's kinda the point. It's a bet on IPO or (valuable) acquisition. Most companies end up as neither. Cynically, I wonder how much of the insane (even in the moment) valuations were driven by VC firms trying to commit capital so they could collect management fees?

brazzy 4mo ago
Ohh, you're more cynical than me! My idea was that it's mostly early investors using FOMO to fleece later investors.
deleted 4mo ago
[deleted]
wildzzz 3mo ago
That post about GenieDB the other day has certainly opened my eyes to the sausage making behind the scenes.

Forgeties79 4mo ago

> Indeed it may start to lead to saner valuations along the way. SpaceX’s valuation + “data centers in space” being taken as a serious pitch leads me to think it’s only getting worse.

ignoramous 4mo ago

> Companies being devalued is not news. It happens on the stock market everyday TFA points specifically at "recent funds" that have underperformed public markets. More recently launched funds have been returning markedly less money to investors than those of earlier vintages, according to the World Economic Forum. They have also underperformed the S&P 500 by a wide mark, particularly those that did not invest in a small club of artificial-intelligence superstars, says Mr Cohan. > Of course the VC investment model is high risk. Power law at play, apparently: High risk with high rewards only for the top 5%. ... already, just 5% of them produce 90% of its profits.

ghaff 3mo ago
And VC even historically has not performed especially well. And just to take an anecdotal example, I have a friend who did some angel investing. He still does a bit on companies he believes in but admits he's have done a lot better putting a lot of the money into NASDAQ or some other index, much less some of the big tech firms.

marcus_holmes 4mo ago

> There's no interest rate on VC investment, and if profitable it can run forever. This isn't how VC funding works. The fund has a time limit, usually ten years, and has to wrap up and pay back in that time limit. If your company is not profitable in that time limit, tough. The VC will exercise whatever rights they have and pull whatever they can out of it.

danmaz74 4mo ago
Typically, what can they pull out? don't they only have equity?
- _fw 4mo ago
  They might not easily be able to cash out, but they often have more options than people realise. VCs will sometimes invest ‘convertible notes’ which start as debt and “convert” into equity in favourable scenarios. ‘Swamp’ and ‘drag’ clauses are also commmon: if a management team/CEO doesn’t meet their goals as set by the board (like give investors a meaningful exit) then investors can take over and replace that team, or force a sale. Illiquid private equity in an early stage business, especially one that isnt growing, is hard to get rid of. That’s why investors derisk with terms that massively favour them at the expense of the business they invest in.
  - marcus_holmes 3mo ago
    In our case, the VC's merged us with our biggest competitor and then sold that to a PE fund. Nothing we could do about it. I took voluntary redundancy and got out asap.
- jmalicki 3mo ago
  I've been in a startup that was operating at ~breakeven and did layoffs to actually be profitable, and at ~10 years in the VCs forced an acquihire since they wanted out.

jjav 4mo ago

> If the company itself is profitable, then typically it can continue. I only wish, but rarely. This is one of the great tragedies of the grow at all cost system. There have been so many great profitable companies, where the product is great, customers love it, employees love it, everyone is happy.. except it's not growing fast enough to satisfy the leeches so it gets destroyed. As a society we should be supportive of small companies that make a great product that everyone loves, pays good salaries and makes a profit. The more of those, the merrier. But no, unless growth is on the hockeystick curve, private equity will destroy it sooner or later.

kasey_junk 3mo ago
The reason hockey stick growth is required is because the “leeches” are putting up the capital to build the profitable company and if the profits dont significantly outpace the risk free rate it’s a very bad investment. The founders and employees and even the customers are accruing all the benefits of that capital so of course they are happy. How else do you propose funding the quite expensive and risky enterprises that venture backs? Taxes? Paying employees less before profitability? Charging early customers a lot more? Clearly you can see the downsides of those approaches.
- TheOtherHobbes 3mo ago
  Growth != Profits I would propose not funding them at all, because so much of the system has turned into outright grift, with wildly implausible "companies" receiving brain-melting sums so investors can pay themselves huge fees. The companies all do things like "Pitch decks as a service" or "Coworker cafes in space" or "Fusion permanently two years from now, until we spend the money on drugs then pivot to military contracting" or "AI-powered gig economy pet sitters for the Bay Area". There's a lot of happiness around, but there are also more useful things everyone could be doing.
  - kasey_junk 3mo ago
    That’s already an option? You can get small business loans, bootstrap, get grants etc that don’t require massive growth. You can found or work for a company like this anytime you like. But the “leeches” the op mentions are a voluntary funding mechanism for a particular kind of company. If you found or work for one of those the trade off is clear. You can’t have it both ways though. As an employee you can’t live off the largesse of investors as you build the business and then not expect them to want an elevated return on that risk.