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tl;dr the author argues that the ultra-cheap venture backed services are a problem because while they're using money from VC firms and being patient, they're dr

tl;dr the author argues that the ultra-cheap venture backed services are a problem because while they're using money from VC firms and being patient, they're driving out local businesses, and they'll ultimately fail, leaving a hole in the local service ecosystem.

arbuge 13y ago
If that's the problem, it should eventually autocorrect when the investors give up permanently and local businesses return.
- wffurr 13y ago
  That word "autocorrect" masks quite a lot of suffering on the part of local business owners who close up and lose their livelihood and investors (including pension funds, retirement accounts, etc.) which lose their money. Sure, in the long run it all works out, but in the short term there's quite a lot of turmoil.
  - smacktoward 13y ago
    As John Maynard Keynes put it, "in the long run we are all dead."
- notahacker 13y ago
  Even if that invariably happens it's not much consolation to the local business owners bankrupted because their skinny margins couldn't compete with the "disruptive" idea of running at a massive loss for two years. Venture capitalists make a loss inducing formerly marginally profitable businesses to make a loss represents a deadweight loss to society overall even if the service gap gets filled. That said, most of the named business lines are those particularly easily replaced even if the threat of other VC-backed businesses coming into the market still exists: those inclined to open sandwich shops or market themselves as handymen aren't likely to be too worried about more online threats emerging in future, and the savvier ones are instead figuring out how to get profitless startups to provide them with low cost marketing.
- hagbardgroup 13y ago
  Not impossible. Private equity is itself young. Venture capital is even younger. It may be an artifact of our particular time, place, set of tax policies, and financial system.
- bowlofpetunias 13y ago
  You do realize that those local business are run by people with families to feed, and that "eventually autocorrect" does not "autocorrect" the ruining of their lives?
- 001sky 13y ago
  The purpose of predatory pricing is remove the auto-corrective components of the ecosystem. It follows that it should eventually autocorrect is wholly speculative: b/c The markets can remain irrational--longer than you can remain solvent
couradical 13y ago
They also argue that this poses a long-term potential problem for VC as well. Eventually an institutional investor wants their money back. Eventually they have to settle up and see who the Amazons are vs. the Pets.com. That forces businesses to transition towards exit in some fashion, if they move to IPO, this shift forces them to make a shift (to become profitable) which will kill some. I don't see how that's a controversial point, but it's a distinction that a lot of people who aren't in tech, or around startups don't get.
- wmf 13y ago
  I don't think we need to worry about VCs robbing their investors. Both sides of that transaction are pretty smart people who can take care of their own interests. As for the startups, I think your comparison of Amazon and Pets.com is astute. For each of these companies, are we looking at an unprofitable early stage of a company that will eventually become profitable (e.g. Amazon, probably Uber) or are we looking at a company that can probably never become profitable? The former seems fine even if it causes some temporary disruption, but the latter is just waste.
- beat 13y ago
  I think the professional institutional investors who run pensions and what not are fundamentally different from some Grandma investing her life savings in a "hot stock". Venture capital is just another diversification checkmark for such big funds. A VC once told me that he thinks most venture funds don't really stand a chance of making money at all. The reason they have money to invest is because there's such a surplus of cash from institutional investors who need the "venture capital" checkbox. The lower-end VCs don't get the best deals and have to settle for leftovers, so their chances of getting lucky in a get-lucky business are that much lower. At any rate, no honestly run pension fund is actually putting its capital at significant risk by tossing a few tenths of a percent at a collection of VC funds.

arbuge 13y ago

If that's the problem, it should eventually autocorrect when the investors give up permanently and local businesses return.

wffurr 13y ago
That word "autocorrect" masks quite a lot of suffering on the part of local business owners who close up and lose their livelihood and investors (including pension funds, retirement accounts, etc.) which lose their money. Sure, in the long run it all works out, but in the short term there's quite a lot of turmoil.
- smacktoward 13y ago
  As John Maynard Keynes put it, "in the long run we are all dead."
notahacker 13y ago
Even if that invariably happens it's not much consolation to the local business owners bankrupted because their skinny margins couldn't compete with the "disruptive" idea of running at a massive loss for two years. Venture capitalists make a loss inducing formerly marginally profitable businesses to make a loss represents a deadweight loss to society overall even if the service gap gets filled. That said, most of the named business lines are those particularly easily replaced even if the threat of other VC-backed businesses coming into the market still exists: those inclined to open sandwich shops or market themselves as handymen aren't likely to be too worried about more online threats emerging in future, and the savvier ones are instead figuring out how to get profitless startups to provide them with low cost marketing.
hagbardgroup 13y ago
Not impossible. Private equity is itself young. Venture capital is even younger. It may be an artifact of our particular time, place, set of tax policies, and financial system.
bowlofpetunias 13y ago
You do realize that those local business are run by people with families to feed, and that "eventually autocorrect" does not "autocorrect" the ruining of their lives?
001sky 13y ago
The purpose of predatory pricing is remove the auto-corrective components of the ecosystem. It follows that it should eventually autocorrect is wholly speculative: b/c The markets can remain irrational--longer than you can remain solvent

couradical 13y ago

They also argue that this poses a long-term potential problem for VC as well. Eventually an institutional investor wants their money back. Eventually they have to settle up and see who the Amazons are vs. the Pets.com. That forces businesses to transition towards exit in some fashion, if they move to IPO, this shift forces them to make a shift (to become profitable) which will kill some. I don't see how that's a controversial point, but it's a distinction that a lot of people who aren't in tech, or around startups don't get.

wmf 13y ago
I don't think we need to worry about VCs robbing their investors. Both sides of that transaction are pretty smart people who can take care of their own interests. As for the startups, I think your comparison of Amazon and Pets.com is astute. For each of these companies, are we looking at an unprofitable early stage of a company that will eventually become profitable (e.g. Amazon, probably Uber) or are we looking at a company that can probably never become profitable? The former seems fine even if it causes some temporary disruption, but the latter is just waste.
beat 13y ago
I think the professional institutional investors who run pensions and what not are fundamentally different from some Grandma investing her life savings in a "hot stock". Venture capital is just another diversification checkmark for such big funds. A VC once told me that he thinks most venture funds don't really stand a chance of making money at all. The reason they have money to invest is because there's such a surplus of cash from institutional investors who need the "venture capital" checkbox. The lower-end VCs don't get the best deals and have to settle for leftovers, so their chances of getting lucky in a get-lucky business are that much lower. At any rate, no honestly run pension fund is actually putting its capital at significant risk by tossing a few tenths of a percent at a collection of VC funds.