from Hacker News

Keeping loss-making giants like WeWork flush with VC cash is killing competition

by ekpyrotic on 8/14/23, 7:39 AM with 21 comments

• by RansomStark on 8/14/23, 8:21 AM

  warning: cynicism incoming, but...

  isn't this just the VC playbook:

  1. enter market

  2. undercut incumbents by burning VC cash

  3. wait until the incumbents fail

      a. if you're getting close to burning all the available cash, sell to an incumbent and try a different market.
  

  5. you are now a de facto monopoly

      a. if you fail to reach monopoly status plan an exit (SPAC) before it all comes crashing down
  

  6. increase prices

      a. if your product is free, harvest more of your customers data
  

  7. keep increasing prices

      a. harvest all the data you can get away with
  

  8. cash out (IPO)

• by hliyan on 8/14/23, 10:40 AM

  I see a point here:

  > it seems sensible to recommend that if a start-up raises a certain amount of collective funding, say $1bn, the competition regulator needs to take a look at how that money is being used, and ensure it is not being leveraged to undermine the market.

  In international trade, I understand this to be the same as the practice called "dumping".

• by DuctTapeAI on 8/14/23, 1:55 PM

  That's literally the entire point of VC funding. Folks love to talk about the network or advice VCs can give but the real value prop is the ability to operate at questionable/negative margins for longer than your competitors.

• by throwawaysleep on 8/14/23, 7:57 AM

  > If you operated an office business, how could you possibly have competed with this rate of burning money? If you were an ambitious entrepreneur, why would you choose to compete against such a well-funded, absurd competitor?

  Raise money in a similar way?

• by SilverBirch on 8/14/23, 9:05 AM

  It seems odd to me to take WeWork as the example - it's the worst example. The market worked fine with WeWork, they burned a load of money in a business model that had no moat with no real plan of how they'd make the business profitable. The business wasn't profitable and so it went bankrupt. The interesting thing about WeWork is that they essentially took a silicon valley playbook - which is normally applied to products that have high fixed, low variable costs - and applied it to an industry where their entire costs were variable.

  I don't see why you would try to solve this problem on the front end. It is perfectly fine for WeWork or Uber to throw money at customers and give the average consumer a free lunch. What is failing is on the back end. The whole premise of these business models is "If we get to monopoly scale, we're going to exploit our monopoly". But... we already know monopolies are bad, there's nothing unique to start ups here. The simple answer is just enforce monopoly law. If it turns out that Uber has a huge market share and is using that to price gouge then step in with anti-monopoly laws.

  I think the closest thing you can come to this being a start up thing is the Softbank model, where Softbank owns stakes in so many different players in a single market that they effectively are operating a cartel.

  What you really want is a healthy market regulator that tackles monopolies so that Venture Capitalists don't think "Grow this until we can exploit our monopoly" is a good strategy.

• by kgbcia on 8/14/23, 11:28 AM

  Isn't that the point