>>If they don't make back this money, it will represent a huge waste of resources.
Hardly; it'll just be a transfer from VCs with too much money to everyone else in the economy. We could probably use more of that.
Hardly; it'll just be a transfer from VCs with too much money to everyone else in the economy. We could probably use more of that.
Profitable companies are typically win/win/win for customers, employees and investors. Unprofitable companies are win/win/lose at best.
Take all the money the investor had lost, and if you had simply paid the employees the same for doing nothing and given the rest to the customers it would be a Pareto dominating outcome. The difference is destroyed wealth -- it's how much worse off society is because those investors didn't invest in profitable companies. Aside from the transfer of wealth, they really are setting fire to money.
- that alternative investments with predictably better profitability characteristics existed
- that customers would have preferred wealth transfer in the form of cash or financial assets instead of in the form of goods or services.
For example, maybe I don’t mind forgoing a direct cash transfer from Lyft investors because what I really need is on-demand transportation. If, in response to my ride requests, they told me what the real fare would have been and transferred to my bank account the real fare minus what I would have been charged, I’d still be left without the ride I wanted (and the whole infrastructure and network of drivers to ensure future rides). It could be perfectly rational for me to value receiving that wealth transfer in the form of a ride and operated ride service more highly than receiving it as cash.
The second point makes sense too. I think a weaker argument along those lines still works, though -- Something like, "If they couldn't become profitable by raising prices they're burning that money."
Ford is a profitable company, and if they set their prices to zero they would deliver more value than their cash hoard before they went bankrupt.
If Lyft upped their prices to juuust below your marginal utility for a ride and still weren't profitable, the Pareto argument (plus a penny) is pretty solid.
The VCs are gambling with someone else's money though. They raise money from institutional investors: pension funds and insurance companies. Ultimately the little guy will pay via government bailouts, pension reductions, and higher insurance premiums.
It's a mixed bag really, a lot of it has to do with pensions sometimes being run by untrained elected officials, or them buying whatever bs a pe or hedge fund shop is selling them.