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Comment by manigandham | Hacker News Reader

Yes this is PR speak. These companies have 2 possible exits:

1. Get big enough to build and scale an ad network and other services

2. Get bought by an existing scaled network

Option 2 is far easier which is why startups/VCs optimize for it. FB benefits by letting them do all the experimentation and then acquiring when they have proven traction, effectively gaining control of the new users for less money than competing outright, while the founders get a nice payday and move on.

What gets really interesting is when the same VCs behind FB are the ones kicking off these new experiments, a nice little money machine once you're in the loop.

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I hope this doesn't sound too snarky, but ...

If option 2 will become illegal in the future, would that mean that startups would have to optimize to turn into real companies? You know, that kind of company that need to be profitable on their own? And perhaps, but only perhaps, with a sustainable income?

No, because as a startup founder and now investor, I would work day and night to find another "loophole" for easy money. There are hundreds of thousands of people who think like this

Sustainable income? If you're getting a check for $10 million, do you care?

The point is that, as a society, we should care. And that means putting in the right checks and balances that at the individual level we still care.

Small kids do not need, nor should they have, smartphones.

A bit off topic but true. You don't deserve down votes in my book.

>Sustainable income? If you're getting a check for $10 million, do you care?

Depends on the kind of values you have.

I would create an unsustainable business in return for $10 million. Does that make me a bad person?

If you have to ask, the answer is probably yes.

No. It is called an exit-strategy.

Mark Cuban became a billionaire by selling a domain name to Yahoo.

Now he is a reality TV star.

To be fair, he used some of that stardom to get Shark Tank to drop the automatic 5% equity grant just for appearing on the show, including retroactively to previous entrepreneurs.

https://www.inc.com/will-yakowicz/mark-cuban-forces-shark-ta...

That's orthogonal.

You can have an exit-strategy, or become a billionaire, or a reality tv star, and achieve it by acting bad.

Selfish for sure. Soneone is going to pay that 10 million. And I bet your service does not provide equivalent worth to the community. Heck, probably net negative even without the money.

If you designed the business knowing that it would collapse at some point in the future, and knowingly sold it to someone that would be left holding the bag, I think that would make you a very unethical person. If you did this, real people would be hurt by your decisions, and you would have continued to execute your plan knowing this. Maybe you just haven't thought through the consequences, but I wouldn't want to be friends with someone that acted that way.

Edit: Since it appears that I wasn't clear enough, I'm saying that misrepresenting the value of a business to employees, customers, and investors is unethical. If everyone involved knows the venture is doomed to fail and you can still retire off the profits, I don't see a problem with that.

What? All companies will collapse, building a business means fighting against that to create value. Why do you assume the buyer is clueless? They have just as much responsibility and would only purchase if they see value in the deal.

It's one thing to misrepresent, but that's fraud so that scenario is taken care of. Not sure why there's so much moral judgement going on here or who gets hurt when a company is sold, giving its workers money and opportunity rather than going bankrupt.

You're taking my comment out of context. GP said they would create an unsustainable business for $10 million, which kind of implies that they knew from the beginning that whoever bought the business would lose their investment. Buyer beware doesn't absolve the seller in a strictly moral evaluation. I was merely responding to the GP's hypothetical, not making a comment about the VC market in general. Also, GP never said fraud was off the table. :)

It doesn't imply anything. If the seller is not fraudulent then it is absolutely up to the buyer to judge the value and thus the price they pay. If they're paying $10M for a business with all the data upfront, then they are assuming they can recoup that cost.

I can sell a company that has a business model that will expire in a few years because of new tech or laws or some other reason - if a buyer still buys the company from me then what's the problem? Who gets hurt since that's what you said would happen?

There's nothing invalid or unethical about this strategy nor do I care if the acquiring company just executes badly and ends up wasting the money.

We're way off topic, but we're not disagreeing here. If there was no misrepresentation involved then there's nothing unethical. I've edited my reply to specify. As to who gets hurt (assuming information asymmetry): the users who depend on the service, the buyer that loses their investment, and the employees that put a significant portion of their lives into trying to breathe life into an operation where the founder was only interested in creating the short-term appearance of value in order to flip it.

I'm more concerned about the damage to the users who get the short end of the stick after being lured by a service and its promises, than about the buyer.

It sucks even more when they provide an API, and with little forward notice, discontinue the service entirely. Google is notorious for that as well.

Are you friends with a lot of people who have sold startups for $10 million?

That's a meaningless hypothetical situation. There's no way to know when or if a business you sell will collapse in the future. Unless you actively conceal material information from the buyer (like hidden debts), which crosses the line from unethical behavior to criminal fraud.

If while you were building it, you advertised to your users as some kind of user-centered "passion" project (complete with PR BS targeting them to lure them), only to screw them after they have depended on your service by selling it to some large company that will fuck it/close it, then,

yes.

You can't build a policy on "Maybe people will just be nice?".

Aggregate economic decisions are not based on values, they are based on systematic incentives.

If society operated on altruistic values, it would have never invented government.

>If society operated on altruistic values, it would have never invented government.

This assumes there are no coordination, planning and other services that the government offers.

At best, society would never had invented the police.

An obvious third exit option is proven and popular: be bought and ousted by uncommonly optimistic investors or competitors, so that scaling, profitability etc. become their problem (even if founders linger at their former company as employees with negligible stock).

How is that different from option 2?

The company still stays as a separate entity.

Call it option 3. The exit for the board is either sale or bankruptcy.

Why should it be illegal? Are you saying companies should never be bought by another? Mergers and acqusitions are a massive driver of the market so what do you expect to take up the slack?

Profit isn't the only measure of value. Startups by definition are experiments in business models and scaling quickly. Maybe they build something that fails to sell but are still worth something to the acquirer. Remember there are 1000x more startups that fail completely and generate no value at all.

If you want regulation then it should be for the acquirers from getting too big, usually called anti-trust laws, but I dont see what's wrong with people putting some money together to try and make something to sell.

> Mergers and acqusitions are a massive driver of the market

Pardon if I missed something in economics 101, but a large amount of mergers and acqusitions lead to market distortion, which drives the market into the opposite direction of what is good for customers. Cartel law tries to limit the damage, but more often than not prevents monopolies at the cost of tolerating oligopolies.

> Remember there are 1000x more startups that fail completely and generate no value at all

Maybe that number would be lower if startups optimized for stable income rather than acqusitions? Because then, a startup that is "merely" able to earn a living for a few people is considered a success path, rather than a failure path to avoid early on.

No disrespect to Tech Accelerators but I thought getting bought by Facebook and Google are very much preached when you are at these accelerators.

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