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Venture Predation

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Re: Venture Predation

#211

Post by brookst »

Aunche wrote: post #58
ethbr0 wrote: post #41

Earlier quoted context omitted.

> different economic phenomenon that needs different rules than if e.g. Goodyear sells tires at far below cost in California until competitors leave and then they raise the price. What's the end game to VC subsidies? There are many VC-backed businesses where 'Scale until you become profitable' is the end goal. But there are also many where 'Outlast until competitors leave and then raise the price' is the only plausib…

> What's the end game to VC subsidies? I don't think VC's give a damn about long-term profitability. All they want to do is to trick later investors into buying them out. I can't think of a single one of these types of companies that has had a profitable year* let alone make enough profit to recoup their losses. *I'm excluding AirBNB because their prices are cheap by operating in a legal gray-zone.

What do hou think investors should be interested in, if not increasing the value of their investment?

Re: Venture Predation

#212

Post by jwr »

I am a founder of a bootstrapped B2B SaaS business. A VC-founded competitor that can burn through money offering subscriptions at unsustainable prices (e.g. $20/month) is the main fear keeping me up at night.

Re: Venture Predation

#213

Post by jwr »

brookst wrote: post #33
glutamate wrote: post #17

Other thing we need to talk about is when funded startups run customer service that is not sustainably financed. Everybody apparently loves this and celebrates that the great service and listening to its customers. But it is just the same thing: predatory pricing applied to a product delivered with high-end customer service. Edit: Example: $5/month Todo list SaaS that has a 24h customer support telephone helpline

I don't see the problem. They apparently believe in a low margin, high volume play with support being a volume driver. They might be right or wrong, but I wouldn't want it to be illegal as a business model. Investors and companies have to be free to lose money or else we've just got a centrally planned economy where every business has to offer the same product at the same price.

The problem is the stupidity of those who believe unprofitable businesses can work in the long term and be sold for lots of money, and the resulting self-fulfilling prophecy, because those businesses indeed can and DO get sold for lots of money.

And the aura of money extends to customers and blinds their judgment. Few people look at long-term sustainability when choosing a service/product. It's usually about how polished it is, how well it works today, how shiny it looks, how "big" the company behind is. Nobody thinks about whether the business will exist in two years. And few people consider that if they are a customer of a VC-funded business, there is literally no outcome that is good for them: either the company goes bankrupt, or it gets acqui-hired, or it gets strategically-acquired, or (best case but very rare) does an IPO. Even in the case of an IPO the customers generally lose, as the product gets bloated with new features they do not want or need (see Dropbox).

When you run a B2B SaaS, you realize all that with painful clarity.

Re: Venture Predation

#214

Post by jwr »

liorben-david wrote: post #152

Losing money while you grow isn't neccesarily bad. Venture Capital at its best allows a company to take losses until it can achieve economies of scale. I'd say it turns predatory when even after achieving scale(Like Uber or Amazon) a company still runs an unprofitable business to choke out competitors. How can you prove this in court? No clue. Maybe the company has to articulate the explicit economy of scale it hopes…

It's about unit economics: losing money while you grow isn't bad, but if you lose money on every customer, it means subsidized growth. That's usually done not to get economies of scale, but to get GROWTH GROWTH GROWTH and user numbers, so that the unprofitable business can be sold to the next buyer/investor.

Re: Venture Predation

#215

Post by scotty79 »

pyrale wrote: post #174
boeingUH60 wrote: post #94

Earlier quoted context omitted.

Quidsi founder Marc Lore sold his next company, Jet.com, to Walmart for $3.3 billion [1]. Both Quidsi and Jet.com were never profitable, meaning Lore was also playing the game of venture predation, so hardly any pity from me. To add, Lore's current startup is a premium food delivery service called Wondery that raised $350 million at at $3.5bn valuation last year [2], and it's not profitable too. None of Lore's compan…

> Both Quidsi and Jet.com were never profitable, meaning Lore was also playing the game of venture predation I don't know about the books in this specific case, but losing money doesn't mean you're into venture predation. You could very well be losing money but also have sound unit-cost to price.

> You could very well be losing money but also have sound unit-cost to price.

If you have that and still loose money then you are doing other things that get you ahead of your competition that need to sustain their operation with those prices. Either way you use somebody's money to cheat your competition.

Re: Venture Predation

#216

Post by throwaway290 »

qwytw wrote: post #144
throwaway290 wrote: post #130

Earlier quoted context omitted.

It seems obvious, they are burning through Microsoft's money for now (it was said these chatbots cost way more to run than they make profit) to capture the market and be able to get thick margins later.

> it was said these chatbots cost way more to run than they make profit Well if it's running on Azure and using massively overpriced Nvidia data center GPUs I can't imagine anything else would be possible. Then again it's not like there any incentive for OpenAI to increase efficiency as long they get 'free' Azure credits (and it's not like the real cost for MS is anything close to what they are supposedly investing i…

The incentive surely comes from Microsoft, they didn't invest with no expectation of ROI:)

Re: Venture Predation

#217

Post by tomatocracy »

qwytw wrote: post #161
tomatocracy wrote: post #114

Earlier quoted context omitted.

The direct fix for this (which I believe has happened in some countries) is to ban them from asking drivers to enter into exclusivity or minimum volume agreements with them. Then drivers can work for multiple networks.

> Then drivers can work for multiple networks. They already can do that? (and very often do)

Yes - I believe Uber used to have a number of terms which made that difficult in practice (eg restrictions on numbers of rides rejected/accepted per day, etc). In at least some countries though competition authorities have banned these.

Re: Venture Predation

#218

Post by mcdonje »

MichaelZuo wrote: post #203
mcdonje wrote: post #192

Earlier quoted context omitted.

Because poor sanitation is a disease vector that can kill people and ruin communities. A working toilet is an unmitigated good. Cars on the other hand have a much more questionable value proposition. They turn cities into parking lots shrouded in smog and significantly contribute to climate change. Even if cars only contributed in positive ways, they're still not necessary to a functioning society the way that sanita…

Well considering all UN countries explicitly authorize auto purchasing, ownership, resale, etc., and that the governments of all the major countries actively help their own auto industries, I would say your a bit outvoted on this opinion.

Most of what I said was not opinion, and your point here refutes none of mine. Appeal to authority fallacy, with maybe a bit of appeal to tradition mixed in.

Re: Venture Predation

#219

Post by miiiiiike »

miiiiiike wrote: post #149
gmd63 wrote: post #121

Earlier quoted context omitted.

The problem is society is witnessing races between Tortoises and Hares, where the Hares are doped with venture backing. A healthy society progresses slowly like a tortoise, encountering actual tradeoffs that aren't masked by mountains of cash only to ensure cancerous returns for already rich people at the expense of skilled business owners who are actually designing their businesses to handle endgame stressors. In an…

I get your meaning, but not all competition is sport. You don't have to go horse to horse with your competition if you have an F-35.

I also think this kind of VC puts some of the companies that take it to bad spots. Not all markets can support it. Look at Substack. They came in and bought out the newsletter/indie media whatever market. Unfortunately it’s not the kind of market that’s likely to make that investment back.

Re: Venture Predation

#220

Post by MichaelZuo »

mcdonje wrote: post #218
MichaelZuo wrote: post #203

Earlier quoted context omitted.

Well considering all UN countries explicitly authorize auto purchasing, ownership, resale, etc., and that the governments of all the major countries actively help their own auto industries, I would say your a bit outvoted on this opinion.

Most of what I said was not opinion, and your point here refutes none of mine. Appeal to authority fallacy, with maybe a bit of appeal to tradition mixed in.

> Most of what I said was not opinion, and your point here refutes none of mine. Appeal to authority fallacy, with maybe a bit of appeal to tradition mixed in.

Huh?

> A working toilet is an unmitigated good.

Seems like an opinion, since 'unmitigated good' seems like an impossible thing to prove. Only one counterexample of plausible harm is needed.

> Cars on the other hand have a much more questionable value proposition.

It's even phrased as an opinion.

> Even if cars only contributed in positive ways, they're still not necessary to a functioning society the way that sanitation is.

Sounds like an opinion too.

If none of these are opinions, then can you clarify what you intended them to be?

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