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Comment by tapp | Hacker News Reader

> How could they destroy hundreds of small businesses, if they themselves were not profitable?

The same way venture funded startups destroy bootstrapped, profitable startups: by massively outspending them.

Venture backed companies can get away with it for as long as investors will support them, regardless of how profitable their business may or may not be.

Even if they're not ultimately viable and fail, the pressure can be enough to crush the viable but not venture-funded businesses in the interim.

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So why would VC's fund these company's?

Already covered, but again: even if the strategy is only successful 10% of the time, if that successful 10% more than makes up for the 90% failure rate, the strategy will be attractive.

I will repeat my answer here: Your point is irrelevant because to be profitable really means to be profitable on average (or in the language of statistics, to be profitable in expectation). So a business that may be very profitable 10% of the time, and unprofitable 90% of the time, is equivalent to a business known to be moderately profitable.

It's not irrelevant, you're just not getting the point in the first place. You (still) seem to be conflating the profitability of the VC versus the profitability of each individual venture he invests in. They are not at all equivalent, as I've helpfully pointed out for you.

As such, they can 'disrupt' stable markets that are largely profitable and efficient, and that basically do not need disruption, by throwing tons of cash at them. Most of the time these ventures are not profitable (though they still disrupt the market - negatively!), but the occasional hit makes up for that and makes the strategy net profitable for the VC, even as 90% of what he invests in flames out.

No, I am equating the profitability of the VC with the profitability on average, of the individual ventures they invest in. That is, the mean profit of the individual ventures.

If the VC is profitable, then the average venture is profitable, and therefore, on average, they have a positive impact on the markets they are involved in.

EDIT: in case it wasn't clear, every use of "average" by me refers to the mean, not median. So 10% vs 90% doesn't matter as long as the 10% is high enough.

Ok, so you've destroyed 10 small businesses and replaced them with 9 startups that fail after 18 months, and 1 that becomes a massive success. That's a win for the VC, and those 10 startups are "on average" profitable.

But it's still a loss for society because now we don't have those 9 small businesses or their 9 "disruptive" replacements.

Because they need to look busy? Because the "2 & 20" fee structure incentivises them to pursue strategies that lose money on average but are high-variance?

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