There are two ways VCs can make money from investing in companies like this:
1) Hopefully by increasing prices + slashing their own expenses (i.e. Uber reducing the driver's share), some of these cash burning companies can be instantly profitable. Idealistic for sure, but not out of the question.
2) Using the startup as a vehicle to raise more funds from investors- Remember that the VC is mainly just concerned with getting the company to the next funding round. Take this hypothetical: VC firm invest in company X at a 50m valuation. In 1 year that company raises at a 100m valuation. Even if it's an overpriced valuation and the company eventually has a huge chance of dying, the original VC firm can say that their fund already has a 2x annual return before that happens. They use that as marketing material to raise the next round. Remember that VCs get around 2% of whatever they raise for operating expenses, regardless of how the funds perform.
If you are a VC in a bubble, it is in your financial interest to raise as many funds as possible in the shortest amount of time as possible. That in turn means you have to invest big and invest quick.
1) Hopefully by increasing prices + slashing their own expenses (i.e. Uber reducing the driver's share), some of these cash burning companies can be instantly profitable. Idealistic for sure, but not out of the question.
2) Using the startup as a vehicle to raise more funds from investors- Remember that the VC is mainly just concerned with getting the company to the next funding round. Take this hypothetical: VC firm invest in company X at a 50m valuation. In 1 year that company raises at a 100m valuation. Even if it's an overpriced valuation and the company eventually has a huge chance of dying, the original VC firm can say that their fund already has a 2x annual return before that happens. They use that as marketing material to raise the next round. Remember that VCs get around 2% of whatever they raise for operating expenses, regardless of how the funds perform.
If you are a VC in a bubble, it is in your financial interest to raise as many funds as possible in the shortest amount of time as possible. That in turn means you have to invest big and invest quick.