Venture Predation
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Venture Predation
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Re: Venture Predation
#2From the abstract:
"A venture predator is a startup that uses venture finance to price below its costs, chase its rivals out of the market, and grab market share. Venture capitalists (VCs) are motivated to fund predation—and startup founders are motivated to execute it—because it can fuel rapid, exponential growth. Critically, for VCs and founders, a predator does not need to recoup its losses for the strategy to succeed. The VCs and founders just need to create the impression that recoupment is possible, so they can sell their shares at an attractive price to later investors who anticipate years of monopoly pricing."
Everyone on HN knows this is exactly the playbook of many fast-growing VC-backed startups. No need to mention names.
Re: Venture Predation
#3From the abstract: "A venture predator is a startup that uses venture finance to price below its costs, chase its rivals out of the market, and grab market share. Venture capitalists (VCs) are motivated to fund predation—and startup founders are motivated to execute it—because it can fuel rapid, exponential growth. Critically, for VCs and founders, a predator does not need to recoup its losses for the strategy to suc…
It's the playbook of any well funded organization trying to break into a new market. This is the entire premise of loss leaders, and they're effectively risking their entire capital.
Re: Venture Predation
#4From the abstract: "A venture predator is a startup that uses venture finance to price below its costs, chase its rivals out of the market, and grab market share. Venture capitalists (VCs) are motivated to fund predation—and startup founders are motivated to execute it—because it can fuel rapid, exponential growth. Critically, for VCs and founders, a predator does not need to recoup its losses for the strategy to suc…
It's the playbook of any well funded organization trying to break into a new market. This is the entire premise of loss leaders, and they're effectively risking their entire capital.
Yes, but: for a profitable organization a loss-leader is expected to enable profit-making elsewhere in the org, so a total sum ought to be positive.
For example, console hardware is loss leader for console makers because they make up for it for every game sold. Google Chrome and Android are loss leaders for Google, but are strategic assets protecting its revenue business.
In both cases, these companies can continue to do that indefinitely (as long as it makes business sense).
Venture-backed companies that are burning cash, on the other hand, are pursuing an unsustainable strategy of predatory pricing to kill off competitors and grab the most of the market.
(obviously, it's not either-or, you can easily name examples from long standing companies or startups doing either)
Re: Venture Predation
#5This is essentially how Carvana has decimated the private used car market in my area. Only instead of low product prices, they offer well-above market value for used cars to private sellers so that Carvana becomes the only source for a car that fits your criteria.
Re: Venture Predation
#6I assume this is showing up in part because it was discussed recently in Matt Levine's Money Stuff [0]; it's an amusing (if short) discussion.
[0] https://www.bloomberg.com/opinion/articles/2023-05-18/tether...
Re: Venture Predation
#7[flagged]
Re: Venture Predation
#8From the abstract: "A venture predator is a startup that uses venture finance to price below its costs, chase its rivals out of the market, and grab market share. Venture capitalists (VCs) are motivated to fund predation—and startup founders are motivated to execute it—because it can fuel rapid, exponential growth. Critically, for VCs and founders, a predator does not need to recoup its losses for the strategy to suc…
It's the playbook of any well funded organization trying to break into a new market. This is the entire premise of loss leaders, and they're effectively risking their entire capital.
That’s a bit of an exaggeration right? Facebook sold their headsets at a loss and seem to be doing fine, Uber and doordash entered into markets without charging fees and look to doing fine, OpenAI is currently doing that with ChatGPT and we will see how it goes for them.
Surely, selling at a loss is a risky endeavor, but we see it time and time again that companies selling at a loss get more funding due to their inflated numbers from selling at a loss. Or, it’s only those companies that make headlines and we don’t hear about all the companies going bankrupt selling their services at a loss.
Re: Venture Predation
#9Are there any that are actually successful with this strategy? Uber and Lyft, for one, but they still don't make profit and aren't really that sticky, honestly, given that people will use other services if they're cheaper, like Waymo and some new ride sharing upstarts I've seen around recently.
Re: Venture Predation
#10Earlier quoted context omitted.
It's the playbook of any well funded organization trying to break into a new market. This is the entire premise of loss leaders, and they're effectively risking their entire capital.
Yes, but: for a profitable organization a loss-leader is expected to enable profit-making elsewhere in the org, so a total sum ought to be positive. For example, console hardware is loss leader for console makers because they make up for it for every game sold. Google Chrome and Android are loss leaders for Google, but are strategic assets protecting its revenue business. In both cases, these companies can continue t…
Theres no difference between what you just described just that one has an umbrella where its funded by revenue elsewhere and the other is on VC dollars on the promise of long term ability for market share and raise prices or someone else buys organization and continues it as a loss leader for its ability to get market share.
Ones higher risk but quite similar.
Not sure what your point is to be honest