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This is based on the unjustifiable assumption that the author knows better than the VC's and other investors. In particular, the author somehow knows that thes

This is based on the unjustifiable assumption that the author knows better than the VC's and other investors. In particular, the author somehow knows that these company's won't be able to turn a profit, even though the VC's and investors surely believe the company will.

andrewfong 12y ago
VCs also anticipate they'll be wrong a majority of the time about a company. That means, a substantial amount of the time (maybe a majority of the time?), they'll be throwing a lot of money at "disrupting" existing businesses with no successful alternative.
- QuantumChaos 12y ago
  But since profitability is better thought of in terms of averages or expectations, it makes no difference if the companies in question are all moderately profitable, or a few extremely profitable companies, and some non-profitable ones. If the business fails, then it has disrupted existing businesses for no gain. But if it becomes extremely profitable, then presumably it has made some cost savings in order to be able to do so, and so deserves these profits. If the average business is profitable, then the investment is justified, both for the investors, and from the point of view of society as a whole.
Klinky 12y ago
The VCs don't always believe it'll turn a profit, a lot of times they are hoping for a big buyout payday.
- QuantumChaos 12y ago
  A big buyout is equivalent to turning a profit, since the buyer will expect to profit from their purchase.
  - Klinky 12y ago
    No it's not. A company being profitable is different than a company turning a profit specifically for it's initial investors. The profitability of a company post-buyout is murky. We're also talking about VCs getting in on profitable businesses ventures, not tech conglomerates. If a VC makes their money by finding hot trending startups that later get bought out, they're not really investing in a company that profits on the merits of the business plan alone. A lot of the big buyouts are based on buzz, and often the valuations are overblown when compared to actual ability to profit. Expected profits != actual profits.
gamblor956 12y ago
It's not based on the presumption that the author knows better than the VCs. It's based on the very real fact that profitless VC-funded startups are competing based on unsustainable prices with the goal of raising prices in the future once their competition has been starved out. It's market manipulation (but not the type that rises to the level of impermissible market manipulation).
- QuantumChaos 12y ago
  It's easy to make this allegation, but very hard to substantiate it, since there are many factors that influence profit, and just because a company isn't profitable now, doesn't mean that the only way they can become profitable is by starving out their competition and then raising prices. Can you give a single instance of a venture backed startup actually causing price increases after driving out their competition?
  - alextgordon 12y ago
    Amazon epitomises this.
    - QuantumChaos 12y ago
      How does Amazon empitomise this? What goods have they raised the prices of (and why I say raise, I mean relative to the price before Amazon, not that Amazon merely increased their own prices).
      - olefoo 12y ago
        You might want to take a look at http://bits.blogs.nytimes.com/2014/05/23/amazons-tactics-confirm-its-critics-worst-suspicions/ http://bits.blogs.nytimes.com/2014/05/23/amazons-tactics-con... It certainly seems like Amazon is beginning to exercise their strength as a monopsony to gain unfair advantages and extend their business into new areas without actually competing on merits.
        12y ago

andrewfong 12y ago

VCs also anticipate they'll be wrong a majority of the time about a company. That means, a substantial amount of the time (maybe a majority of the time?), they'll be throwing a lot of money at "disrupting" existing businesses with no successful alternative.

QuantumChaos 12y ago
But since profitability is better thought of in terms of averages or expectations, it makes no difference if the companies in question are all moderately profitable, or a few extremely profitable companies, and some non-profitable ones. If the business fails, then it has disrupted existing businesses for no gain. But if it becomes extremely profitable, then presumably it has made some cost savings in order to be able to do so, and so deserves these profits. If the average business is profitable, then the investment is justified, both for the investors, and from the point of view of society as a whole.

Klinky 12y ago

The VCs don't always believe it'll turn a profit, a lot of times they are hoping for a big buyout payday.

QuantumChaos 12y ago
A big buyout is equivalent to turning a profit, since the buyer will expect to profit from their purchase.
- Klinky 12y ago
  No it's not. A company being profitable is different than a company turning a profit specifically for it's initial investors. The profitability of a company post-buyout is murky. We're also talking about VCs getting in on profitable businesses ventures, not tech conglomerates. If a VC makes their money by finding hot trending startups that later get bought out, they're not really investing in a company that profits on the merits of the business plan alone. A lot of the big buyouts are based on buzz, and often the valuations are overblown when compared to actual ability to profit. Expected profits != actual profits.

gamblor956 12y ago

It's not based on the presumption that the author knows better than the VCs. It's based on the very real fact that profitless VC-funded startups are competing based on unsustainable prices with the goal of raising prices in the future once their competition has been starved out. It's market manipulation (but not the type that rises to the level of impermissible market manipulation).

QuantumChaos 12y ago
It's easy to make this allegation, but very hard to substantiate it, since there are many factors that influence profit, and just because a company isn't profitable now, doesn't mean that the only way they can become profitable is by starving out their competition and then raising prices. Can you give a single instance of a venture backed startup actually causing price increases after driving out their competition?
- alextgordon 12y ago
  Amazon epitomises this.
  - QuantumChaos 12y ago
    How does Amazon empitomise this? What goods have they raised the prices of (and why I say raise, I mean relative to the price before Amazon, not that Amazon merely increased their own prices).
    - olefoo 12y ago
      You might want to take a look at http://bits.blogs.nytimes.com/2014/05/23/amazons-tactics-confirm-its-critics-worst-suspicions/ http://bits.blogs.nytimes.com/2014/05/23/amazons-tactics-con... It certainly seems like Amazon is beginning to exercise their strength as a monopsony to gain unfair advantages and extend their business into new areas without actually competing on merits.
      - 12y ago