This perfectly illustrates the "opening up" paradox. If you, as a Government, aggressively open but the public still sees risk, not much will change. People won't go outside much because they perceive risk. We'll have to wait much longer to actually know whether opening aggressively is a mistake or not. From my perspective the risk of opening too early and starting a second wave much later in the year, is worth taking very seriously.
I'd say anyone drawing conclusions from a a few weeks data has a 50% chance of getting burned at this point.
That's interesting because I live in a country where it's the opposite, e.g still only essential services after 2 months, limited goods sold, ban on cigarette and alcohol sales, curfews for shopping.
Point is I think the opposite of what you're saying might happen here, i.e. regulations loosen and there's going to be a disproportionate number of exposures as a place not so tightly regulated
I could have been more clear. My point is that aggressively reopening might still be dangerous, but it'll take a while for the public to convince themselves it's safe enough to start going out, even though it isn't. I'd imagine this would be driven by both consumers not wanting to get sick _and_ businesses trying to avoid liability for employees and customers.
I'd counter that Pizza hut has a key logistical advantage of vertical integration. A delivery service is a very different business than a restaurant chain that does its own delivery.
I agree that GrubHub, Doordash, and to some extent Uber seem bloated when considering the sum total of the markets they play in. That doesn't mean these business models aren't sustainable, though. Some companies allocate resources to a few areas that turn into profit centers, some don't. The ones that don't will be sold off or parted out. And the cycle will continue. I'd wager that one of these companies will survive and turn out to be a profitable, healthy business in the next few years. The rest will probably be sold off or slowly downsized.
More broadly, to your criticism of SV's investment strategy, resource allocation is a hard problem. If you want to direct large sums of capital at certain business verticals, do you want to grow slowly and steadily over a 20+ year period only to find that the economics don't work, or do you want to fail fast with some extra waste in the middle? Failing fast has some upside to it, though I understand why I consistently hear this criticism on this site. It feels like the last decade has seen the pendulum swing towards fast money and back a little. I don't think were as far off from a healthy middle ground as some might argue.
> If you want to direct large sums of capital at certain business verticals, do you want to grow slowly and steadily over a 20+ year period only to find that the economics don't work, or do you want to fail fast with some extra waste in the middle?
Maybe we'll eventually learn that artificially forcing business models to run at accelerated rates creates self-fulfilling prophecies of "fail fast."
Well, no, because for each VC portfolio, it's either profitable off the survivors, or it isn't.
The point is that from the perspective of investors, the survival of an individual startup is an irrelevant metric. What they're interested in is the profitability of the whole portfolio.
And so far, a 90% failure rate with <5% wild success is a profitable formula. As long as that remains true, they have no reason to change it.
Literally every single company in the top 6 of the S&P 500 was financed via private VC-style funding at the beginning.
Whether the numbers crept into the billions when the company was private or public is irrelevant. The point is that for a company to reach scale, they need billions in funding from somewhere.
Somebody has to take the risk, and all investors want returns for that risk. Public market growth investors want rapidly growing companies just as VC investors do.
None of the top six companies were funded by billions of dollars that were lit on fire like today’s companies.
The early companies like Apple and Microsoft were started with a few million not even a billion in today’s dollars. As I said earlier, Microsoft didn’t even need the later rounds of funding and wanted to bring expertise on board.
The only one of the current top tech companies that weren’t GAAP profitable at IPO is Amazon and even it used its own operating cash to fund growth.
One would assume that there are different styles of VC-style funding, with different time horizons. My original point isn't disputing the need for the existence of VCs in some funding cases- I'm not DHH arguing that every startup needs to bootstrap- my point is that this cycle has shown that VCs pumping in dumb money while chasing unrealistic fast returns has led to self-fulfilling failures, and a toxic culture that promotes that. The original statement:
> do you want to grow slowly and steadily over a 20+ year period only to find that the economics don't work, or do you want to fail fast with some extra waste in the middle
Seems highly dubious because you can take a perfectly fine business model and create an unattainable, doomed-to-fail situation out of it by subjecting it to unrealistic expectations, as we have seen in dozens of examples from the current bubble. Stress testing is not useful if it sets artificial pressures that destroys the business.
Are we talking about investment strategy or cherry picking data for the sake of arguing?
1. There are plenty of companies on the path to IPO that didn't take 1B+ in VC money
2. The "sharing" platforms are expensive investments because there are so many players fighting for market share.
We're talking about a strategy of fast growth vs slow and steady. All the companies we've mentioned so far invested in fast growth early on, whether from VC or reinvestment.
I’m not cherry picking data. Look at the top profitable tech companies today and compare the amount of money invested in them before they became profitable to the Uber and Lyft’s of today.
Amazon is the outlier when it comes to the lack of GAAP profitability for years, but even it was cash flow positive.
That's a false dichotomy. We're also talking about rates of fast growth vs. unrealistic hyper-growth. I'd argue that as the current tech bubble inflates, we've leaned towards the latter. [0]
Let's leave it at this then: if capital is completely miss-allocated and a bubble has been inflating over the last 5-10 years as you claim, then we'll hear the proverbial pop in the next three to six months as a rapid pullback in consumer spending unwinds nearly all VC backed growth stage companies.
Congrats, we're already in the early stages of the pop. But I'm also not claiming that capital is completely misallocated, that's another all-or-nothing false dichotomy on your part. I'm saying that the current VC climate has been dominated by a toxic culture of chasing hyper-growth in many inappropriate cases, killing companies that otherwise have fine business models by subjecting them to stressful expectations. You can take a strategy that works in some cases and apply it in a wasteful, unrealistic way. That is called a cargo cult. Even before this virus crisis we saw earlier this year and last year companies in the SoftBank portfolio experiencing layoffs in the fallout of WeWork's demise. Onwards, not "nearly all VC backed growth stage companies" will be unwound, but the ones funded under the most reckless of terms will be in grave risk. If you haven't seen the bubble popping, you haven't been paying attention.
I'm not sure what you're getting at. Here are the facts: Companies following these accelerated growth trajectories now make up a total of 4 trillion in market capitalization depending on how you count it. That's really just the FAANGs, not the smaller companies that are profitable or on the road to profitability [1]. If you count everything you can safely say the number is closer to 8 trillion.
Every year, VC in the US _as a whole_ invests roughly 100B [2]. If you cut out non-growth and non-tech sectors I'd guess that number total goes to around 40B, and roughly 100B (very rough number) globally.
So yeah, some money gets "wasted" but it creates huge market capitalizations that are around two full orders of magnitude larger than a single years investment, and growing strong year over year.
Netflix started in the original dot-com bubble as a DVD rental service, and only began streaming in 2007, a decade after they were founded. Reed Hastings put up $2.5 million himself. Not exactly a case of rapid illusory hypergrowth like the poster children unicorns of the current gig/sharing economy dot-com bubble.
None of these companies had to deal with the current investment environment. It's an arms race. While it's a chicken and the egg issue since both Facebook and Google provide virality and discovery, respectively, and it is those two features, virality and discovery that lead to a positive return on investment from blitzscaling.
Besides discovery and virality, there is also the issue of falling transaction costs. When Google, Facebook and Amazon were founded, you had to maintain your own datacenters and infrastructure. That alone produced a massive barrier to entry that made competition less fierce. Since the advent of AWS and other cloud computing platforms, transactions costs for tech companies have dropped dramatically so you can't rely on infrastructure prowess as a competitive advantage for many tech verticals.
You simply can't compare companies that were born and matured in different markets with different dynamics to those founded in the past 10-15 years. It's apples and oranges.
Becoming a massively profitable megacorp isn't the only winning formula.
Were Linkedin, Instagram, Beats by Dre, WhatsApp, Tableau, Skype, GitHub, MuleSoft all failures because they were acquired for billions, making lucrative paydays for their founders and investors?
You missed the other part of the equation. No one said that all VC money was dumb. The conversation is about billions of funding going down the drain like in the case of Uber compared to the paltry sum inflation adjusted raised by the tech behemoths before they went public and became profitable.
Beats by Dre raised less than $1 billion in funding.
Netflix - created in 1997 with profit from selling Reed Hasting previous company. They IPOed 5 years later in 2002 don't see anything about VC money. Could be some but definitely not the Softbank model back then.
There were two changes in the "Softbank model" -- first was investing at this scale without a real network effect or any sort of "moat," and the other was just the sheer speed of the investment -- an avalanche instead of a snowball. A company like WeWork doesn't have any real reason that it needs to grow hyper-fast -- it's a Ben and Jerry's.
Doordash tried that, with Doordash Kitchens. Don't know why, but their pseudo-restaurants in Redwood City, such as Rooster and Rice, have dropped off the Doordash site.
From all appearances this is more or less what China is doing today. Lockdown until the number of new cases in a geographic area is zero, then slowly loosen the grip of suppression and calibrate based on new information. When the second wave starts I'm sure the response will be a little more measured this time.
Not sure why this is getting voted down, this is absolutely the case. Either you kill exponential growth via isolation/inoculation or damn near everyone gets sick in an exponential explosion and the healthcare system is overrun. This is simple statistics.
I can't figure voting out on this site anymore. It used to work a lot like other spots, with primarily upvotes given to express general agreement or reward insight, and downvotes reserved for comments that got something factually incorrect. Now I'm seeing about a 50/50 split with downvotes, and it generally doesn't correlate in any meaningful way with either correctness or the status of the debate. It's routine to see discussions with reasonable participation on both sides gets a wildly asymmetric split in votes, with half of them grayed out entirely. And it kinda sucks.
In this particular case here in this topic: there's a voting (but seemingly not commenting) population that just really wants COVID-19 to be a flop. I'd be tempted to say that's a political position, but in fact politicians have largely unified on this (finally). Maybe it's a counterculture or conspiracy thing.
No one should be surprised. This site, and its moderation, has (possibly even unintentionally) favored a certain political ideology for years. I and others stopped maintaining accounts over it. Any economic discussion is inevitably political, but strangely only certain types of comments and discussions get slaughtered by public opinion or admonished by moderators. (Easy to see in each passing day as it becomes obvious that direct relief / UBI are necessary and the libertarians of this site realize that caring for fellow human beings might benefit them too!)
I mean in the last week, multiple legit stories have been flagged off the home page about Coronavirus. Go back and look at the comments on the story that hit the frontpage about Trump trying to buy exclusive rights to a vaccine... A story that was ultimately confirmed as true. But yet it was flagged off the frontpage by Trump supporters that denounced it as "fake news" of course, as if he doesn't regularly do things that would be unbelievable without video/audio evidence.
Meanwhile, any comment, like yours, that mention the BLEAK REALITY THAT THIS IS GOING TO LAST MORE THAN 3 WEEKS is getting downvoted. Systematically. As if downvoting you changes basic fucking maths.
Frankly, I think it's massive cases of denial. I think people are just starting to get an image of how bad this is going to be and how fucked our social structure is about to be. Especially if this drags on for many months (like those of us paying attention understand is likely).
HN has just generally been particularly insufferable the last week and a half, but at least the really obnoxious deniers have mostly ... stopped.
People also chronically overinterpret whatever they see on HN that they don't like—again, myriads of comments make the opposite generalization to yours. Randomness plus cognitive bias equals narrative.
Yet it wasn't like this in the past. And while I won't make the same accusations I do think it would be good for you guys to look at the culture that gets encouraged here. There is a viciousness to the voting here and an intolerance of opinion that just doesn't match the seemingly sophisticated comments.
You seem to be talking about voting patterns while I'm talking about cognitive biases leading to bogus generalizations. Those seem like two distinct "it"s.
As for voting patterns, I'm not sure I agree. For example, it's not true that downvotes used to be reserved for something factually incorrect. The voting mechanisms are subject to the same psychology as they always were.
Your comments often argue in edgy ways that are not exactly in keeping with the spirit of this site. From my perspective that's more likely why they're getting downvotes. I took a quick look and your comments that I saw which were upvoted don't seem to have this quality. Usually, when people complain about downvotes, there's something in their comments that they're not aware of, but which is apparent to readers. Of course there are also downvotes simply because of disagreement, but all comments get those, and they usually get fixed by corrective upvotes if there's nothing else in the comment that has a downvoteable quality.
Massive economic impact. After a couple of months, a good chunk of all retail businesses that aren't grocery stores are going to be irrecoverably bankrupt.
Sure but what happens if we do nothing for a month and let the virus spread rampant. Then we bankrupt the entire country paying for healthcare assistance packages for those who cannot afford it and are the hardest hit. Or would you recommend we just leave them sick on the streets?
The cost of healthcare for all of the illness even if 100% of the population got the virus this month is less than the economic destruction our self-imposed economic sanctions have already caused even if they ended today.
This is only true if you don't count the cost of massive casualties that are impossible to fully quantify the cost of and only count of the cost of running the healthcare system at existing capacity.
Let's cook up a fantasy scenario where we have unlimited resources and can treat as many patients as needed. Let's also optimistically pretend that only 1% of cases need ICU treatment. Take 1% of 327M and you get 3.2M ICU beds required. Now let's say that at the peak, half the population is sick (likely given the unmitigated exponential explosion scenario), meaning we need 1.6M ICU beds at the peak. We have roughly 100k ICU beds in the country, 1/16th what we need. The cost of those beds would be trillions of dollars. Of course we can't magically materialize ICU beds, so hundreds of thousands will die. I'd choose 6-12 months of the GFC over that _any day_.
Do you not believe these basic facts or just don't have empathy for other people who are at risk?
2: 12 months of not actually living is already giving up about 1.3% of the life of our whole population, and that's not counting the health problems caused by poverty or the mental health cost of eternal social isolation.
3:. There is no believable model where 100% of the population gets the illness. Even the absurdly pessimistic models end up at 60-70%
4: the models that assume nearly everyone gets sick require that there are already many, many, many undetected cases, which makes severity and mortality much lower than is being otherwise imagined
5:. This will sound callous, but 99% of fatal cases involve folks with other serious chronic illness, and at least 80% (good numbers are hard to find) are past retirement age. Though these people add.much value and happiness to our world, they aren't going to produce much more economic productivity. This doesn't mean they don't matter, but we were having a discussion on economics
They are not equalizers, they are amplifiers. The steel plow fed a man, the cotton gin clothed him, antibiotics cured his cough and an airplane took him from his old country to a new one where he learned how to drive so he could deliver the morning paper.
The goal should never be to lower the ceiling. The goal is to raise the floor.
I'd say anyone drawing conclusions from a a few weeks data has a 50% chance of getting burned at this point.