> It’s capital intensive, doesn’t easily scale without linear costs, is basically a commodity, and customers aren’t willing to pay what it actually costs
What are some VC funded companies that come to mind that do not fit this profile?
What are some VC funded companies that come to mind that do not fit this profile?
The type of investment called out by the start of this thread sounds exactly like the type of speculative "we don't even know if this is technically possible, much less if there's even a market for it" that Silicon Valley was founded on.
yes and that's the entire point of Silicon Valley.
It's also why you can't have another Silicon Valley in Europe or Asia where almost no one is willing to suspend belief and reality like this.
I've been invited to meetings and conferences from places in Sweden, Amsterdam to Thailand, and investors in all of those places balk at the kind of mindset you need to invest in startups. They are more comfortable with loans than investing. They lose confidence faster or require a higher ROI than would make sense. SV is really special and the reason why the best talent from all the over the world gather there.
VCs become rich not because they are smarter and better than Warren Buffet but because they are willing to place bets that Buffet would never take on.
I don't think this model is inherently bad. If an idea is good, is it not saner to get a loan instead of dilluting ownership?
This, of course, is predicated that parties are operating in good faith. SV has been for quite a while a sort of grift. Money is dumped on whatever can reach the exit event, no matter how unhealthy or senseless the business is in general.
I call it a grift even if it indirectly benefitted me. I avoid startups like the plague (both as labor and as user), but this grift did soak up engineers and raised salaries across the board. Alas, sometimes it's important to call a spade a spade.
Is the idea of a company or companies that R&D and sell GPUs good?
Is the idea of Dropbox good?
Is the idea of diffusion LLMs good?
More importantly, how does my vague notion of the ideas are good or bad tie back to my original point that investors willing to loan instead of taking ownership is perhaps more sane?
> More importantly, how does my vague notion of the ideas are good or bad tie back to my original point that investors willing to loan instead of taking ownership is perhaps more sane?
First, no one is forcing you at gunpoint to respond to me, so feel free to engage and go as deep as you want, as much as you care to, or not at all.
Second, investing, typically in shares of a company, is very different from giving a loan to the same company. Loans are typically based off collaterals, even if it's "unsecured" - it's always secured by something, even if as nebulous as just a credit history or "ability to pay".
No one reasonable in 2026 will argue collaterals with sama or OpenAI today, but I assure you, there was an entire universe of companies that would not give sama a loan in the early 2000s when he struggled to live paycheck to paycheck, or even OpenAI itself (a loan) in 2016 when they were exploring household and gym robots. I'll make the exact same argument for NVIDIA late 2018 to early 2020 post the cryptocurrency demand correction or even before that 2010 to 2015 - go look at the tickers back then.
So again, with the complete power of retrospect:
- Is NVIDIA a company you would loan your own money to?
- Is Dropbox a company you would loan your own money to?
If you get caught up in details like "how long is the term" or "what's the expected ROI of the loan", be generous with those details.
No shit. This is essentially my point.
I don't care what companies will or will not exist on each model; What I care about is the sort of incentive each model creates.
In a model where investors give loans to nascent companies as a mean for those to have needed capital, the incentives are there for a company to make sense, grow organically, and chase profitability. In other words, the incentive is there for companies to be economically viable.
The model you defend creates an incentive for destructive growth. Investing in exchange of equity only makes sense to reach the exit event, no matter how ruinous things are as a result. It's a model that creates this shitty hustle-culture grift-economic. I will have trouble to express politely how much I think it makes the world a shittier place.
As I said, I indirectly benefitted from it, but I recognize that this model sort of sucks.
So, it doesn't really matter if I would have loaned money to those ventures (in a scenario where I am someone in the position of loaning money). But for the sake of entertaining you, I'll reply:
- NVidia: Maybe. The hardware business is cutthroat, but I think a company can be sustainable producing computer hardware.
- Dropbox: Probably not. Neat idea, but easy to copy by larger players or other upstarts.
- Diffusion LLMs: No. Too experimental, and I likely would not have seen potential for it early on.
What would be the collateral a lender(s) would use to loan NVIDIA money in 1993 when it had no assets, nor revenue, nor a proven business plan?
Even if a lender(s) provided a loan without any collateral, what would be the terms of that loan? What would be the amount of loan, who would it be underwritten against, what would be the APR?
> It’s capital intensive, doesn’t easily scale without linear costs, is basically a commodity, and customers aren’t willing to pay what it actually costs
> It’s capital intensive, doesn’t easily scale without linear costs, is basically a commodity, seemingly has negative cashflow forever, and customers aren’t willing to pay what it actually costs. It’s basically the worst tech business model and yet somehow VCs caught a spell and threw every available penny into the fire.
We already agree on the first two. So the following remains:
"commodity, and customers aren’t willing to pay what it actually costs"
To that I say:
- AWS, Uber are all commodity
- Most customers of AWS, Uber aren’t willing to pay what AWS, Uber charges them
Disagreements?
HOW are AWS and Uber commodity? What commodity are they?
In what possible way could customers not be willing to pay what they're charged? Both companies saw billions in profits last year – is that paid unwillingly? Are they extorting their customers? If they're both commodities why wouldn't the customers just purchase from a different provider?
Uber and Lyft literally "sell rides for a fraction of what all this costs them" upto early 2025. I don't know how old you are but I started to use them back in 2012. I was one of their early users when you could sit next to the driver. From then upto 2025, Uber and Lyft used to literally cost me less than what just gas would cost me to drive the same distance.
This is true too: "It would then claim it’s worth 100x the valuation of the taxi service" - there was literally a website (might be up even now) that literally made this argument and why Uber was doomed to fail anytime now.
Your first two points are also true for Uber Lease - a product that was rolled out for drivers - they could choose to lease specific models and Uber in turn signed agreements with specific automakers. An exact parallel for these points, esp. the circular financing is hard to make because they are not even the same product but I imagine one would agree, on the whole, we are in the conception stage of LLMs and this industry is brand new and figuring things out.
This same pattern had happened when PCs were becoming mainstream. That was 40 years ago so memory of it might be faint or lost. Also VCs weren't really a huge deal back then either but the fundamentals were the same.
We are all overreacting over a nascent industry, upset that it's increasing prices for everyone and pushing humans out of jobs. This is understandable but the conclusion is wrong. We are letting emotions drive decisions.
I would say you are either very young or unfamiliar with Uber as a business. Uber was and continues to be extremely capital intensive and you need to qualify your "while". Uber burned cash for 14 years.
The one argument I can agree with is Uber didn't burn as much cash as Anthropic or OpenAI does but they are very different businesses with very different impact on humanity.
Yes, and AI is the same sort of monopoly grab. Except not for Taxis, but for computing. Make a compute intensive process a necessity (that's where AI comes in) and buy 100% of all compute capacity, eventually buying up all the fabs and locking everyone out of acceptable general purpose computing, forced to move everything to the cloud.
This is overly dramatic and pointing that out is necessary because this could cause someone else, even if not you, tremendous anxiety and pessimism about the future: None of which is good for your health.
First of all, no one's been forcing anyone to use AI or "move everything to the cloud". AI is tremendous leverage. It's exactly as useful as a jet or FSD is for commuting. It expedites significantly intelligence-related tasks. No one is forcing anyone to use AI. However, just like a person who owns a jet gets to a place faster than a person without, or a FSD allows you to get work done instead of staring at other cars, a person using AI will get their tasks done quicker than a person without. But that doesn't force a necessity.
Moving "everything" to the cloud is also not going to be financially smart. Companies like Apple, Google, Cloudflare, etc are aggressively moving compute to the edge, locally on device. This increases your own chances of running services locally on device because the device manufacturers will build their hardware to match the demand.
Second, compute capacity has always been elastic. Supply constraints have forever been an issue and that's how markets work. Supply gets constrained, suppliers react to demand, market reaches equilibrium.
In 1996, I had a real tough time getting a T1 line to my office. By 1998, it was no longer an issue. By 2000 there was more fiber than we knew what to do with.
I had a real tough time hiring good, quality engineers 2020 through 2024. That was a constraint in the supply. The market reacted and now there are a lot more good, quality engineers.
Yes, there's a severe constraint now but the market is going to respond and we will have a very different situation in 2030.
Capitalism works. It's not always roses though and not everyone benefits all the time.
The primary difference is that starting a company means talking to people.
So while you can be inside a room, read books and try things out at a computer and become a great engineer, to start a company, you have to go out and talk to people - but the steps are exactly the same. The feedback loop is slower and far more noisy.
Computers don't lie but people do, and that's the essence of business.