by anovikov on 3/28/2025, 10:34:41 AM
It's simple, well-connected founders. It's not a business, more like a friendship circle. Investors socialise with each other by playing with this toy.
by pettycashstash2 on 3/28/2025, 10:47:15 AM
Don't confuse profitability with business success. Many businesses such as Google minimized profit for a long time through reinvestment and to minimize tax exposure. Yes, the fundamental purpose of a business is eventually to be profitable - that's the traditional view. However, in the startup world, especially with venture capital backing, this gets complicated. Some observations that might help explain what you're seeing:
Some investors bet on potential rather than current profitability. They might see something in your company's technology, market position, or team that they believe could eventually generate returns, despite the previous failures. The "sunk cost fallacy" can play a role - existing investors might continue funding to protect their initial investment rather than writing it off completely. Some founders are genuinely overoptimistic, with an almost irrational belief in their vision despite contrary evidence. In rare cases, there could be tax advantages or strategic reasons for certain investors to keep an unprofitable business running.
I work at startup which is not succesfull, nor profitable. We burned around 15M in total since it was funded ~decade ago. During my time here it had seen administration followed by new investors taking over. Twice. Third time is inevitable, I see signs of it based on past experience.
Still, founders are all bright colors and act as if this situation was OK. But I ask myself, is the purpose of business to be profitable? Who would be sane enough to pour X millions to a venture that is known to have failed multiple times? I mean, I get it that founders might have this business model which is purely to ride on investors cache and keep building hype aura around them, and it might work once, but multiple times? Can somebody help me understand?