It's pretty interesting that FAANG doing venture capital is basically like legal insider trading.
They clearly have data on web traffic, consumer usage, advertising spend, etc. that other VC firms and investors generally don't have access to.
They can use this to understand entire markets, see who the incumbents are, estimate revenue/users, see who's up-and-coming, etc. Obviously within some margin of error.
I wonder if this is how Facebook identified that Instagram was on the path to success, and knew $1B was a great deal. Meanwhile everyone at the time thought they were crazy for spending that much.
Since startups aren't publicly traded, I don't think insider trading laws apply to trading their securities. FAANG is legally allowed to use their access to information to make better investing decisions than other companies are able to. (IANAL)
It seems like they have a high chance of getting a great ROI. Once you're a big tech company, this is just another way of monetizing the vast troves of data you have.
That's not really insider trading. Matt Levine pops up here all the time, and one of the really distilled mantras he has:
inside trading isn't about fairness, it's about theft.
Like the people who track flights to speculate on M&A, or use satellite and aerial imagery to look at parking lots. Gathering information isn't a crime, in fact gathering and acting on that information is explicitly what you want at an aggregate level. What you don't want is entities stealing or misappropriating information that doesn't belong to them. I think all the mentioned data categories are basically Fb's line of business, so if it's usable it seems like its pretty fair game.
And that exactly is the problem. The game is rigged in favor of folks who already have access to information (or can afford to buy it), not available to regular folks. That is how billionaires double their billions faster than me essentially playing lottery/roulette with my $1000 on Robinhood.
There is probably a useful fact that you know that billionaires don't. It is probably local or related to your technical expertise.
Peter Lynch famously researched companies by watching to see where his family spent pocket money. I recall reading analyses of trading performance by members of Congress -- they generally did about the same as everyone else except in companies associated with their districts.
Anecdotally, it is easier to double small dollars than large dollars. Berkshire Hathaway's growth has eased for ~2 major reasons: 1) Prices have been high for the last decade+, frustrating the core algorithm of value-investing. 2) It is very difficult to put huge amounts of money to work.
The alternative to a world with asymmetric information (and probably impossible to implement at that) is one with zero privacy, where all information is open to everyone always. I don't think we want to live in that world.
The absolutely dismal performance of most hedge funds indicates otherwise. In fact, it's probably easier to generate alpha using small amounts of money. When you're managing billions and billions of dollars, you're severely constrained in the types of strategies you can actually run. This is why, for example, that RenTech's Medallion fund is capped at 10bn.
Just by investing in an index fund, retail investors are getting a pretty great investment, essentially freeloading off of all the hard work the active funds are doing.
I would say that the vision fund was predicated on a audacious idea that was either pure genius or absolutely idiotic. The idea is as follows, instead of investing our huge pile of money into a bunch of different companies, which takes a lot of legwork, let's just fund a relatively small amount and give them a bunch of money. We will give them so much money that it's not possible for them to do anything except totally crush the competition and control the entire market.
The problem with the idea, and the eventual reason it didn't work, was that though it was largest VC fund ever, 100bn isn't actually that much in the scheme of things. There's so much money sloshing around the system looking for the place where it will be treated best. So, in essence, what Softbank ended up doing was bidding up the price of the entire industry, creating massive inflation. If Softbank gives a shi-tton of money , and another VC gives a shit-ton to a competitor, they've both just wasted a shit-ton of money.
I actually don't think Masa is the compete idiotic everyone makes him out to be. He has a very high tolerance for risk, but that doesn't make him irrational. The Vision Fund might not be doing that well, but Softbank's stock is looking pretty good at the moment.
No, it’s not worth it for them to spend $50k in someone’s salary getting them up to speed on the local culture of a place to discover a trade that might be worth 150k.
You’re not getting the math. It’s absolutely worth it for you to spend 2 months of your time to find something worth $150k.
A hedge fund, investing team, whatever you want to call it, has a limited capacity. They need to beat market returns on pool of money so large that spending 2 months to find a 300% return on something with a max investment of $75k is absolutely an incorrect use of time.
Read about opportunity cost to understand why there are many things “worth it” to people without access to something better.
A hedge fund needs to post good returns on the capital it has with the man power it has. They simply do not have enough resources to spend time on netting 100% returns on 50k investments. And they can't hire the problem away either, unless they pay each new employee less than 50k.
Simply outlawing extreme ownership of capital, via high taxes is a way to avoid privacy issues.
Unfortunately, we don’t seem keen to enable people to live their lives. We seem keen on making people ogle these giant initiatives and enterprises.
I don’t believe that’s natural. Growing up “off the grid” until the 90s, I’m still aghast at how sycophantic people act towards Amazon or a Gates like rich person.
Then I started seeing how forced social interaction is for upper middle class especially.
I should point out my family wasn’t poor. On the contrary, my parents just wanted to raise us outside the mainstream.
Don’t get me wrong I, love the gaudy culture. What I’m talking out against is demands to organize it just so. To normalize to the point of absurdity human agency to propping up of finance markets and banal old men’s gambling fetish, lavishing praise and riches on men as “owners” of the things we build collectively at scale is absurd to me.
There’s too much evidence out there suggesting success like that is luck not skill, and continued success like that is due to corruption of human social goals, not a lifetime of extremely good luck.
Continuing to play that social ladder game is hilariously morbid motivation to me.
Why not just have these men take their genitals out and prove who can take more whacks to the sack. That’s really what all this stuff feels like to me.
Lookit Bezos dashing back in to save Amazon. The idea is the place is winning!! Oops reality gets in the way and they stumbled with logistics hard.
Thanks to lavishing Amazon with praise in the form of billions, they’ll power on through it no problem. Tens of thousands of employees spared!
Meanwhile, thanks to the tax system literally millions of people are fucked.
But Facebook is publicly traded. If you truly think this is the case why not just put your $1000 in their shares and let it compound at the same rate as Zuck’s?
On the other hand, incorporating exotic or unusual sources of data makes the market more efficient for everyone. The market is first and foremost a method for price discovery and rewards actors for their contributions thereto.
No, it benefits you too. By just holding an index fund you are freeloading on all of their work. You get efficient allocation while doing and paying virtually nothing.
I think people misunderstand how great and powerful index funds are for retail investors. Moreover, I people massively overhype this alternative data thing. Using alternative data to generate alpha is mindbogglingly difficult. If you just buy from a 3rd party firm, most likely all the alpha has been sucked up. So you need to source it yourself, clean it, analyze it, etc etc. It's really fucking difficult, and very expensive.
Trust me, you're not missing out. Your index fund is probably beating the returns of many firms with billions of dollars in capital and dozens of research analysts.
The game isn't rigged because it isn't zero sum. Billionaires getting richer doesn't normally impact your ability to get richer. And as long as you're free to maneuver how you'd like, it shouldn't really matter to you that someone else is succeeding faster or slower.
Also, it's generally the case that there are more opportunities to turn $1 into $2 than to turn $1B into $2B.
> Billionaires getting richer doesn't normally impact your ability to get richer.
I believe this is not true for multiple reasons.
First - regulatory capture. Once a sector of economy generates a handful of billionaires, legal / regulatory barriers go up which make it much harder for startups to compete.
Second - competitive barriers. Google can acquire all the search channels (eg. paying Apple and Mozilla billions of $$$ to be the default search engine on iOS / Firefox).
Third - price undercutting by subsidizing a subset of the incumbent's product portfolio by profits from other parts of the business. See: Amazon vs diapers.com.
So yes, the game is definitely rigged in favor of billionaires.
What makes MLM schemes bad is not that the people at the top make money faster, but that people who aren't on the top tend to not make any money at all. This is a direct result of the fact that many MLM schemes are actually pyramid recruiting schemes, where you profit primarily by recruiting people beneath you. If everyone is doing this, then recruiting grows exponentially, and it doesn't require many levels before you run out of people to recruit, which prevents anyone below the top levels from making significant money.
Obviously capitalism doesn't have that problem, since it's driven by the sale of goods and services, not by one-time recruiting commissions that we'll some day exhaust.
TL;DR — Your analogy doesn't hold, as the market is not a fixed pie zero-sum game.
Indeed and have. But I have a feeling that the returns that fb would make on their VC investments will be much higher than investment in their stock. There would of course be trickle down effect.
i don't really agree with your point. better information leads to better price discovery for the 'game' at large for longs and shorts (including for unsophisticated robin hood investors). it isn't just about who can 'afford' to buy it; often times it's just about being smarter, or being willing to ask questions that nobody else is asking.
> Their big break came in mid-2010, when Neil Currie, then an analyst at the investment bank UBS, bought parking-lot counts for 100 representative Walmart stores and published the results in a quarterly earnings preview. The number of cars in the parking lots, he wrote, suggested that Walmart stock was undervalued.
> Currie’s prediction proved correct. As word spread that satellite images were a reliable predictor of corporate profits, a range of investment funds began buying retail-traffic data from RS Metrics.
Many cargo-culting orgs can use this as an example to learn "corelation != causation".
1. Buy shares of X; or bet a high-stake deal with X's board to up the stock price by N percent within a period T.
2. Run some offers/programs - which are intended at the theater - not real revenue. Instead of usual 200 cars a day, store might see 400 a day, sales numbers and volume remaining unchanged
3. Objective achieved; use propaganda marketing to sell the idea to others
4. This ups the stock price anyway - cuz data!
5. Collect bounty from X's board for making good on promise
6. Profit!
The theater might not be as simple as what's seen in this example, but this is exactly what startups in one way or other call "hustle" - and possibly the art of faking it till you make it.
Can't remember off top of my head but if I'm not mistaken, Muddy Waters Research did similar things with a listed Chinese company: went all the way to China just to fimd out that there's not much going on in those warehouses,while they were reporting record resuls.Shorted the stock,made tons of money.
That is sort of the modus operandi for Muddy Waters, there are a few public cases like that. Given that parent talks about warehouses, it sounds to me more like the aluminum company China Zhongwang.
But one argument for breaking up Amazon hinges on how they unfairly compete with their sellers by collecting data on what sells and what doesn't sell on Amazon and using that data to come up with their own in-house brands.
Is that different from what Facebook can do for their funded startups?
A tangent, but how do you define "theft of information"? I suppose this circles back to the concept of IP, which I'm increasingly confident should be abolished in entirety.
> Gathering information isn't a crime, in fact gathering and acting on that information is explicitly what you want at an aggregate level. What you don't want is entities stealing or misappropriating information that doesn't belong to them. I think all the mentioned data categories are basically Fb's line of business, so if it's usable it seems like its pretty fair game.
This entire thread is getting so tangled up in what's presently legal and supportable under our exact, current implementation of capitalism that all of our brains have fallen out.
We don't need Facebook to have this much power! Why should they be allowed to keep this much capital untaxed? Why should they be allowed to own and operate Whatsapp, Instagram, Spotify, and Oculus, all as one huge entity?
> Since startups aren't publicly traded, I don't think insider trading laws apply to trading their securities. FAANG is legally allowed to use their access to information to make better investing decisions than other companies are able to
Insider trading laws apply to all companies, be them public or private. It is illegal to trade based on undisclosed material information the other party doesn't have - the law doesn't care whether the stock you're buying is private or on an exchange.
Here's an example: suppose you have a startup that's been going a long time, and some employees want to sell their stock on a secondary market. To avoid this, the startup offers to buy back employee stock, using the most recent valuation of the company to price it. However, the CEO knows that since that valuation was carried out the company is doing much better than expected - and the real value of the stock is much higher. This isn't disclosed to their employees.
This is classic insider trading, and the SEC has taken enforcement action against private companies for doing this sort of thing.
FWIW, I don't think Facebook actually has a large amount of material data in this case - a lot of what they possess (number of active users, platform engagement, etc) is already going to be known by the other party.
> It is illegal to trade based on undisclosed material information the other party doesn't have
Insider trading laws are designed to criminalize misuse of confidential information, they're not designed to create a fair playing field.
> FWIW, I don't think Facebook actually has a large amount of material data in this scenario - a lot of what they possess (number of active users, platform engagement, etc) is already going to be known by the other party.
Facebook knows how much money widget-makers are spending to promote widget product pages on Amazon.
That's not insider trading when the startup buys back stock and has more information than the employee has. It might be something else but it isn't insider trading. Now if the CEO was buying the stock rather the startup, that would be insider trading.
I don't think you understand what insider trading is. You can trade on information other people don't have all day long. In fact, that's what a good market is for. What you're not allowed to do is steal other people's information and use that to trade.
First off, the best deals in VC have no real data. Some big part of fund-making today (Vintage 2020) will happen at the seed and pre-seed stage with pro rata rights. So what good is all of Facebook's data about some app that may only exist as an idea right now. Like "disappearing photos" or "miming song lyrics on video."
Expect Google Ventures instead. If you're a Facebook / Google / Microsoft exec it is extremely lucrative to get shares in a company (sometimes as an advisor, sometimes as an investor) then acquire it through the giant company you work for. A lot of Microsoft execs were newly minted millionaires with the LinkedIn acquisition; a lot of Google execs had the same with Nest. Dell, HP, Oracle, VMWare... execs do this all the time.
Lemme give you a broader perspective on, "Company does thing with its money with complex economics and risks outside of its primary source of revenue." These giant companies all have charitable foundations. If you're a main line employee, you want to donate something, your company will match it, it uses an outside contractor to vet the charity, it doesn't do any of that stuff for YOUR main line employee charitable contribution.
You're an exec, you get 10-100x the donation matching benefit as the main line employee, and for some reason it's done through the foundation. Which goes to your family's charity. Run by your wife and kids.
A lot of this stuff boils down to, "executive compensation plans." It's everywhere! The Overstock CEO's ICO scheme was insane. Normal people just buy back stock you know? But it's gotta be creative, take people by surprise.
Some exec had to be motivated to do this and they're going to be motivated by their own personal money. No different than a VC. It doesn't mean that just because it's Facebook and not some VC firm they'll do any better. My expectation is they'll do a lot worse in both economic and accounting terms. The scheme will depend too much on Facebook being the acquirer in the long term so prices will be way inflated and insiders will be too incentivized to buy trash.
> They clearly have data on web traffic, consumer usage, advertising spend, etc. that other VC firms and investors generally don't have access to.
I mean, this wouldn't be insider trading since anyone can do their own legwork to get this information. Insider information would be things that aren't (yet) disclosed to the public, not things that can be ascertained through thorough research.
> Since startups aren't publicly traded, I don't think insider trading laws apply to trading their securities.
Yup. Insider trading laws are designed to prevent the public from being at a disadvantage. Private firms don't need to disclose anything publicly, they can choose their investors, etc...
> anyone can do their own legwork to get this information
Can they though? My point is that FAANG companies are uniquely positioned by having access to this data that the public couldn't possibly have access to.
Exactly right. What do you think they're doing with that data - acting as social altruists? :-)
Having unique data and insights you develop is not a crime - indeed it's what you specifically want. Sourcing and acting on information from inside the company you're not authorized to have is.
Insider trading laws aren’t about fairness. They’re about the misappropriation of information. Knowing things others don’t and acting on it is fine. Acting on information that you have as a responsibility to someone else, or got from someone where that’s the case is not.
Google Analytics is free because it is a complementary good to advertising spend. If the director of marketing tell the CEO "this $1000 campaign on Google drove $50,000 of sales at a 10% profit margin", the CEO is going to okay a lot more advertising spend. This winds up in Google's pockets.
The same logic applies to why Amazon develops open-source software that makes developing cloud applications easier.
It's no accident Facebook got a deal because they had great data; there is public documentation that Facebook acquried WhatsApp (and likely IG) using data tracking users from a VPN service they bought for much less: https://www.buzzfeednews.com/article/charliewarzel/why-faceb...
Others have mentioned that "insider trading" isn't the right terminology here. But more generally, I honestly don't think this is an issue from antitrust perspective. Imagine that instead Facebook granted exclusive access to all of that data to an external VC firm for a fee. IANAL but my impression is that relationship would be perfectly legal - just like similar arrangements between, e.g., hedge funds and satellite data companies.
Now, compare that to a retail store working with the store across the street to fix prices - very illegal, unless the same company owns both stores, in which case it's just called "price discrimination" or "good business". That type of instance - where the behavior would be illegal if it were coordinated between competing firms - is where antitrust concerns really come into play.
Of course, it gets murkier (and becomes a very obvious anti-trust issue) when it comes to acquisitions of competing firms like Instagram. I wouldn't be surprised at all if Facebook's goal here is to acquire stakes in potential competitors while they're still small enough to fly under antitrust authorities' radar.
As many others have pointed out, this isn't insider trading. To drive home the point of how much insider trading laws aren't about fairness, consider this:
It isn't insider trading for Facebook to use all the information it has about web trends to buy companies. However, if a Facebook employee used the non-public information Facebook has to go and buy stock in those same companies, that would be insider trading and be illegal.
Most employees don't own a significant enough stake in their company to benefit from trades made by the company acting on company data. But executives do, and they personally gain from trading on behalf of the company. Trades that would be illegal for any other employee to make.
I think what people mean is this isn't covered under the legal definitino of insider trading, but should be.
I remember reading an argument at the time, probably from Daring Fireball, that Zuckerberg has such a feeling for growth of social media by then, that he could see that Instagram was a great deal, also the same for WhatsApp.
Facebook will next give preferential treatments to startups it has stakes in through more access to data and users, while putting those who choose to not take Facebook's money at a disadvantage.
If you're competing in any way, building in any part of the social media space, this is an invitation to have your product copied as soon as you see any traction.
Facebook doesn't need the money. It's looking for you to do the R&D.
I would guess it's more about the money than you think.
Public companies have a fiduciary duty to maximize profits and investor returns.
They're simply using the data that's available to them to make great investment decisions to make more money.
It seems like a conflict of interest to invest in a company and then turn around and compete with them. If the end plan is to take their ideas once they start becoming successful, you don't need to give them money in the first place. (Case study: Snapchat)
The common theme is that the directors of a company have incredible latitude to run it as they please, and courts won’t second-guess business decisions as long as they are vaguely plausible.
Delaware companies do. See, e.g., Frederick Hsu Living Tr. v. ODN Hldg. Corp., 2017 WL 1437308, at *18 (Del. Ch. Apr. 14, 2017) (“[T]he fiduciary relationship requires that the directors act prudently, loyally, and in good faith to maximize the value of the corporation over the long-term for the benefit of the providers of presumptively permanent equity capital . . .”).
Has this law ever been enforced against a company; that is, is there a ore-existing verdict against a Delaware company for violating this statute? Or is this more of a hypothetical threat? What would the damages or penalty be for violation? It’s not like you can demand money a company should have made without cause or more importantly, verifiable harm to the counter-party.
Certainly it has been enforced against a company (thousands of them), but in a way it is more of a hypothetical threat. I was not referring to a statutory law, but rather to fiduciary duties, which derive from the common law of equity. The quotation from the Hsu case I provided above is a clear depiction of the standard of conduct required of directors and officers of Delaware corporations. But in reality, fiduciary standards operate more like you suggested—as a hypothetical threat. The reason for this is that, although the standards of conduct demanded of Delaware directors and officers are onerous and exacting, the standard of judicial review of challenged conduct is ordinarily very relaxed. In most ordinary situations, the standard of review is the business judgment rule, which essentially punts on the question of whether a particular action violates a fiduciary duty. The idea is that courts do not supplant directors' judgment with their own. More onerous standards of review are available in other situations, such as mergers and transactions where an interested party sits on the board or is an executive. (Facebook is an interesting example of a controlled company, given Zuckerberg's ownership stake, and its decisions might be subject to more scrutiny, but procedural safeguards are generally available to cleanse even conflicted decisionmaking.)
It's worth clarifying that only those to whom fiduciary duties are owed can ever sue for damages resulting from their breach. In other words, shareholders. That's how the threat gets operationalized—by a shareholder or class of shareholders suing the corporation for failing to maximize shareholder value through a fiduciary breach.
Anyways, the point I really wanted to make is that shareholder value maximization really is meaningfully encoded in American corporate law. If you meant to suggest that reality is less black-and-white than that, then I hope the foregoing ramble confirms that you are correct!
Thank you for typing this well thought out response! I see the fiduciary duty canard brought out and it usually functions in debate as a thought-terminating cliche. My comment was meant to elucidate whether or not it was the last word on fiduciary duty; your comment helps clarify the judicial and fiduciary reality on the ground, and really added a lot to my understanding of these issues. Thanks again.
Thank you for your kind words! I totally agree about how flippantly people throw out the value-maximization point. And it is definitely true that the real standards which govern directors' and officers' conduct are murkier than the maxim "maximize shareholder value." The Business Roundtable's recent embrace of stakeholder theory seems likely to complicated things [1], and efforts by influential people like former Delaware Supreme Court Chief Justice Leo Strine [2] and legendary corporate lawyer Martin Lipton [3] have meaningfully contested the accepted definition of corporate purpose outside of the academy in recent months. But I do think Delaware law is pretty clear on the principle behind D&Os' fiduciary duties. The best summation I have seen of it is in a talk that Vice Chancellor Travis Laster gave at UVA Law last spring; [4] it's a great talk. Cheers yo.
Oh wow! Even more info. I remember hearing about the Business Roundtable on a podcast when it was breaking, but haven’t heard much since.
Did it end up just being lip service, or are there lasting changes in industry or individual companies that we can point to which show prioritization of stakeholder value over simple shareholder value?
That question is probably a bit over my head. My outlook is pretty grim and skeptical because of my experience with American capitalism so far. But the fact that people like Leo Strine and Marty Lipton are apparently meaningfully moving these ideas beyond the bounds of academia is definitely a good sign. (Slightly) more tangibly, 93% of investor respondents to a recent survey about corporate purpose indicated that it's important for a corporation to have a purpose, and 38% agreed that defining/managing stakeholder impact is an important reason to have a corporate purpose.[1] (This study was published on the HLS Blog after I wrote a more cynical reply to you yesterday and forgot to send it. Neat I guess.)
I read the Harvard Law corporate governance blog pretty regularly, and a staggering percentage of recent scholarship on there has been about corporate purpose, stakeholder capitalism, and ESG. ESG and stakeholder theory aren't exactly the same thing, but here's a good overview of how ESG might impact M&A and governance moving forward [2].
In practice, firms controlled by shareholders tend to be run for the benefit of shareholders. Facebook is controlled by its founder so it's a different situation.
If it was just the company and Facebook dating together, nobody would mind - or care.
But the "incredible journey" startups, the ones built primarily to exit, are just bait&switch scams for their users. The users are enticed to enter a relationship with the startup, to build a part of their lives or their work around that startup, only for said startup to suddenly get bought out and the product/service cancelled, destroyed, or altered into a much worse and exploitative form.
I've personally seen this dance enough times, and I now refuse to consider depending on a service if I even suspect the founders are in for an exit, and not long-term business growth. I'll chose F(L)OSS alternative first, a stable company second, and a startup only if I can't afford to make the solution I need myself.
Sure, it's not the best situation that a human can ever imagine.
But let's not exaggerate. It's not bad for whatsapp founders. Better than 99.9999999999% of the population (maybe add a couple 9s at the end).
For me, I don't even wanna make a single donation because I need to save every dollar. I can't join any protest or get involved in any politics because I'm already busy enough with my own life.
Whatsapp founders now have 6,000,000,000 USD to power the change they want to see happen. Ok, maybe 5B, as they might want to keep 1B for living cost.
This will not work. If they are that good with information, they must be building products after products that people will love. Tell me one last known successful launch by Facebook in the last 2 years, outside tweaking their existing products.
Only way it could work is if they share their wealth in other areas / people which must be invested in and will not get enough capital if not for them. Ex: Google Venture - Solar City, Tesla.
But founders have to be fiercely independent and the companies must be independent. Like Elon Musk as founder and Larry / Sergey as investors.
Facebook DNA doesn’t allow that, they are predatory in nature. Trying to diversify by external forces since internal options simply failed. Founders of the companies they acquired, left with very unpleasant experience.
Take their money, if you are ready to be as independent as Elon Musk were and ready to say NO to Zuck when and if you have to.
And that's just them getting started. I watched the entire video of last Oculus Connect and it was jaw dropping what they are going for and how much progress they've made. Like, Rainbow's End made real.
Facebook did the same thing they did with Instagram, they bought the company, kept it essentially independent with the founders continuing to run it as an independent management team. As with Instagram, Oculus is now big enough to actually matter to facebook, and so Mark proceeded to fuck with the successful management team until they quit. It's almost the perfect example of Facebook failing to innovate internally.
These kinds of articles about VCs and companies offering to invest big funds used to give me hope, but now that I've participated in bootstrapping a startup, I see these articles as bad news.
They're going to fund my competition... Give them easy money and keep funding them until they get that big corporate exit and I'm out of business because my margins are too small and I can't afford bulk discount on Facebook advertising like they can with all that free money they got.
You know that someone else is going to get that funding, but it's not going to be you. It's more likely to help your competitor than it is to help you (the reader of the article).
This is bad news for the typical reader of this article.
Haha, so true... and even the word "journey" sounds tacky in that context.
You can send free money straight to my bank account at regular intervals and I could write all about my incredible journey; an inspiring story of struggle against all odds.
...The odds of not being able to afford a yacht within 5 years.
> I'm out of business because my margins are too small and I can't afford bulk discount
This is an economy of scale. It's caused by your competitors' capitalization, and it may be unsustainable since it's with respect to customer-acquisition versus production.
If your competitors' unit economics work, they're strategically leveraging scale using capital. Not the other way. (If they don't, go into cockroach mode or sell to them.)
I think GP's point is that these competitors can make the extra capital work even better because they're exit seekers - so their business is just a ticking time bomb that needs to be sold off before it collapses. You can squeeze that growth curve quite a bit if sustainability doesn't matter to you. Meanwhile GP is presumably trying to build an actual business - providing value to users in exchange for money.
Noob question but if you've already bootstrapped your startup, aren't you ahead of the competition and likely to get the funding, instead of the funding going to your competitor.
Just trying to understand the context here: your competitors apply/get-approved before you do, or is it that you don't want to take the funding? (or something else going on).
Am working at a bootstrapped startup. Actually profitable. In a very competitive space. No VCs to answer to, no irresponsible burning of cash on marketing and bloating of engineering team. No AWS. No expensive SF office or lunches paid by VC money. Hiring is dictated by our revenue and profit growth, and no we don't spend VC money on absurdly overpriced engineers.
Because we're run super lean, we've been able to hire more and spend more on marketing during these tough times while businesses are downsizing or putting a halt on hiring/marketing dollars.
If the space you're getting into requires lots of capital, fundraising is unavoidable, but if you're thinking of even bootstrapping a company, it better be one that won't require a lot of capital (SaaS), and you need to run it lean.
It’s very viable. You just need to target a niche that’s too small for VCs to care for.
You wouldn’t be able to bootstrap Uber or AirBNB, because the markets they’re selling into are huge. However, there is an abundance of <10Bn-sized markets/industries out there that a VC wouldn’t think to invest in, where bootstrapped companies with a tech focus can grow and take over.
It’s not about viability anymore, if business takes a VC funding but if you honestly (and brutally honestly) think you can bootstrap then you have won the battle. VC funding is not a reversible step.
Disclosure: I worked for WhatsApp, including while owned by Facebook, and Facebook is assigned my twoish [1] patents.
Has Facebook done anything with their patents? I know they had an early spat with Yahoo and got access to a bunch to help with that, and have since put more effort into building a portfolio, but I don't recall seeing anything in the way of litigation. I know there's been issues with clauses in licenses, though.
[1] I've read both patents, I'm the only inventor, and I can't tell the difference between the two.
I also have three identical seeming patents. I was also confused, so I asked my patent examiner friend, and this was his response. I assume the same applies to you:
"You have one patent family with three patents in it. The lowest number is the parent, it was first to grant. Before it was granted a continuation was filed - they wanted to claim some shit that you disclosed in the parent but didn't claim, and it got granted. Before that one got granted a second continuation was filed to claim some shit that was disclosed in the first continuation. Sometimes that comes from realizing something else in the patent specification was also really important and deserves protection, or something comes up in prosecution and the easiest way to get around a rejection is to file a continuation. All the claims in the patent family are unique."
I wouldn't take a penny from either. It's a wide world with an unprecedented amount of capital in the hands of wealthy investors. There are plenty of funding sources that are neither surveillance monopolists nor government administrations that torture and murder journalists.
Even if that happens, that's fine. Softbank has no incentive for your business to fail. The company that dies, is more money out of the visionfund.
On the other hand, FB does have an incentive. Sure, they lose that investment, but they gain their own internal company that they own 100% of which has eaten your marketshare.
You can mark assets on a spreadsheet, plot profits on a graph, and the result is simply a representation of the abstract concept: finances.
When you factor intent, then money becomes objective. When you factor the ethics of the entity using financial influence, then the result is objective because it affects the real world.
I don't know how else to explain this, and maybe I can't convince you, but real people are affected by these choices.
Profits are never a meaningful metric precisely because they can't be divorced from ethics.
Naturally. How else are they going to monetize the data they have on business traffic?
Just think twice about turning down a deal from them, no matter how bad it seems, because they probably know a lot more about your market and their alternatives to your services than you do. And the strategy in monopolistic situations like this is join us or suffer.
A lot of people are rightly concerned here that Facebook will run this arm in a cutthroat way so as to stifle innovation and competition. Though they might, I have no reason to believe that’s because they want to usurp and control every technology they invest in. I think Facebook knows that their core products and business lines are under threat of attrition, and the margins on ad revenue will get tighter. A venture arm, coupled with one of the world’s beefiest analytics muscle, will probably return more than their core businesses, and insulate them from a potential turn away from social media as a profitable vertical.
That’s what I thought they were doing with Oculus originally. Same with WhatsApp, then they started to commingle the branding.
my (stupid) theory is fb/goog/youtube are now trying to help small businesses as much as possible on their platforms to drive more traffic and revenue since expansion is tapping out at some point
I would dread having Facebook on my board. I intend to treat my future users very well and wouldn’t want somebody with 1-2/5ths ownership in my company pushing me to chase their data
This makes sense to me. Facebook knows that consumers are finicky when it comes to social networks and they need to stay on top of the latest fads. Once new social networks catch fire Facebook needs to do anything possible to gain control of them, and venture investing is one way to do that.
If you were an investor in Facebook, instead of Facebook investing excess cash, wouldn't you prefer Facebook to return the excess cash to investors? Then if you agree that investing in startups is a winner, you could reinvest the cash through some venture fund? Or if you disagree and feel that there's a better use for the cash, such as investing in index funds or paying off your student loans or buying a yacht or whatever, you could do that instead.
One of William Bernstein's Efficient Frontier articles summarises some research on this:
> In the December issue [of Journal of Finance] Jarred Harford found that cash-rich firms destroyed 7 cents of corporate value for every dollar of cash reserves held. How does this happen? Let’s take two firms, both of which are considering a project or acquisition of marginal value. The first firm is cash-poor, and must obtain the capital from a bank, or a stock or bond issuance. This necessitates scrutiny of the project from the outside. The second firm is cash-rich, and thus requires no outside scrutiny—they can simply cut a check. Clearly, the cash-rich company is much more likely to make this potentially unprofitable investment.
> Rajan, Servaes, and Zingales look at the performance of large conglomerates, and find that investment capital tends to flow most readily to its least productive divisions. The more highly diversified the company (i.e., the less related its component businesses) the more dramatic the effect. What is most interesting is that Harford's research found that cash-rich companies are more likely to make diversifying acquisitions—in other words, to turn them into the same companies that this paper shows are the least efficient.
> [...] the February JoF contains an absolute gem from La Porta, Lopez-de-Silanes, Shleifer, and Vishny on dividend policy around the globe. Their primary finding is that in so-called "civil law" countries, such as most of Latin America, Scandinavia, and southern Europe, where investor protection is the weakest, dividend payouts are low. In so-called "common law" countries—basically the world’s English-speaking nations, where investor protection is excellent—payouts are high. Which gets back to Graham’s basic premise; investors prefer dividends and take them whenever the law and culture allow. The authors reinforce the points made by Graham and the other pieces; "failure to disgorge cash leads to its diversion or waste, which is detrimental to outside shareholders’ interest."
> But what is most remarkable about this piece is its tone, which is almost Menckenesque in its description of modern corporate ethics. They describe a Hobbesian world in the kind of plain English rarely seen in academic finance; "Firms appear to pay out cash to investors because the opportunity to steal or misinvest it are in part limited by law, and because minority shareholders have enough power to extract it."
I mean, that’s a bit of the stretch. The implication in “an offer he can’t refuse” is that the mob is going to kill you if don’t accept the offer, not that they are going to drown you in more dollar bills than you can swim through.
> A wide variety of types of malware exist, including computer viruses, worms, Trojan horses, ransomware, spyware, adware, rogue software, and scareware.
It specifically mentions spyware, so let's take a look at that definition:
"Spyware is a type of malware that aims to gather information about a person or organization, without their knowledge, and send such information to hack another entity without the consumer's consent."
> Your accusation even conflicts with the basic definition of malware
The very source you pasted this definition from (Wikipedia) goes on to list spyware as a type of malware, and the page for spyware lists Onavo as an example.
They clearly have data on web traffic, consumer usage, advertising spend, etc. that other VC firms and investors generally don't have access to.
They can use this to understand entire markets, see who the incumbents are, estimate revenue/users, see who's up-and-coming, etc. Obviously within some margin of error.
I wonder if this is how Facebook identified that Instagram was on the path to success, and knew $1B was a great deal. Meanwhile everyone at the time thought they were crazy for spending that much.
Since startups aren't publicly traded, I don't think insider trading laws apply to trading their securities. FAANG is legally allowed to use their access to information to make better investing decisions than other companies are able to. (IANAL)
It seems like they have a high chance of getting a great ROI. Once you're a big tech company, this is just another way of monetizing the vast troves of data you have.