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?