GDP shock: Venture Capital's government bailout begins | Hacker News Reader

GDP shock: Venture Capital's government bailout begins

nextwave.partners

29 pointsdollar21 comments

I really dont understand why this article is waxing about long term economic-philospohical trends when the gdp decline is clearly due to tariffs. Like this is not a pattern, its bad government policy that did not have any guarantee of happening.

Tariffs have a huge hand in it, but the government shuttering large amounts of programs and firings is also GDP declining.

I think it's operating on the assumption that the VC donor money, and the valley's pivot to defense spending is the VCs getting "ahead" of the problem that "AI" isn't going to produce trillions in _profits_ for investors.

"A new innovation model emerges where political connections matter more than business fundamentals."

There's nothing new about this business model. It's just shocking that anyone thinks this will produce better results.

Any sort of "investing" and "wealth building" makes sense only if the given economic agent is not in huge debt, or that debt is very cheap.

At current 4.50% borrowing costs ... I guess it might not be entirely stupid to just pile on investments instead of paying off the debt, especially if your plan is to keep the inflation well above 4.50%.

Now, what exactly would be the composition of such an "investment" is another story, and I'm afraid it's not going to be entirely objective and fair.

It is usually very different entities that invest in investment products vs those in debt. By far the largest owner of shares worldwide are pension funds and insurance companies. Larger still if you add the somewhat indirect savings via products for individual savers, like mutual funds. I suppose this might include sovereign funds - these are often styled as pension funds.

The pension/insurance funds themselves may have debt for their own corporation, not sure - but the capital "surplus" they invest isn't their own money, rather, more or less directly, their clients' money.

There must be some people that choose between repaying debt and investing surplus in 3rd party investments, but surely a minority. Much smaller still for VC which is crazy illiquid.

If the whole VC world does start trying to live off of the US government, and specifically off of this sovereign wealth fund thing, then it actually seems unrealistically optimistic to think that connections with the traditional military/intelligence/national security establishment will be the connections to have.

Except for small, unusual elements, that's all "deep state". Definitely any parts that have any real, deep expertise would get sidelined as obstructionist fossils or whatever. They're already purging the military officer corps to put in loyalists who will do the things MAGA wants without asking too many questions. And I'm sure they're purging intelligence to put in people who not only do what they're told, but say what the boss wants to hear.

The connections you'd need to have would be with Trump cronies and only with Trump cronies. I'm sure they have some Grand Vision(TM) to offer for where the money should end up.

Unable to generate returns that attract private investment, they now seek capital that can't walk away

The grift begins.

The grift began a while ago - when "startups" like SpaceX started using EBITBDA to claim profitability on starlink. But the depreciation costs of LEO are substantial, and starlink satellites have an empirical MTBF of ~5.5 years.

And at a depreciation rate of 15-20%, that "D" term starts to get pretty expensive, pretty darn quick.

I'm not knowledgeable on this, could you tell me more about what it means about ebitbda used to claim profitability?

EBITDA = Earnings before interest, taxes, depreciation and amortization

Basically, it is a profit like number that tells you something about the core business, but it isn’t just the straight up raw profit number of having more cash than previously when all said and done. The person you’re responding to was claiming that they used this EBITDA number to claim they were profitable, when they really were not since presumably, once you account for those costs that are excluded from EBITDA, they may have not been profitable.

I think it's also important to justify why VCs use EBITDA.

Excluding depreciation makes sense when you are dealing with assets with an unknown highly variable lifespan - e.g. software - some of which lasts decades without being touched, others of which experiences breaking changes on a monthly basis. Similarly, excluding interest on debt makes sense if you're borrowing heavily to feed your sales funnel, but otherwise making very real profits on your sales.

However - none of these are true for some of these "new-wave" startups, which are trying to justify an (internet-based marketing) hype cycle to juice their valuations via the "dumb money".

Ok I got why it didn't make sense to use that metric

Presume for the sake of example, a satellite costs 100 million to build and place into orbit and needs to be replaced every 5 years. During the life span of the satellite, it makes 1 million per year, growing 10% per year.

In a more typical accounting system, You would divide the cost of replacement by the lifespan and get that the satellite "costs" 20 million per year, but only earns 1 million the first year, leading to a net loss of 19 million.

With EBITDA, you treat the satellite as a fixed up front cost and then year 1 comes and you made a million dollars! You're in the green! Year 2, you made 1.1 million! Up and to the right we go!

This works great until year 6 when the satellite needs replacement. But with fancy accounting magic, you put the capital costs to replace into a different bucket and can claim that your satellites are money printing machines!

Jesus, it sounds similar to what Intel did a few years ago when they started doing something weird to lead to a lower depreciation expense

> and starlink satellites have an empirical MTBF of ~5.5 years

Where did you get that data from? As I recall reading they’re meant to last a lot longer but if left alone would fall and burn up within 5 years. Is that what you’re talking about?

Jonathan McDowell, the astronomer and debris tracker:

https://web-cdn.bsky.app/profile/planet4589.bsky.social/post...

They may be _meant_ to last a lot longer, but as you launch a larger constellation, you end up finding more and more edge cases which your original design missed. Even if it's a generous 10yr lifespan - 10% depreciation is pretty brutal, especially if your customers are expecting a certain coverage quality, as then you need more redundant satellites in orbit.

Starlink claims to be free cash flow positive, with is pretty much the opposite of using EBITDA to claim profitability. It's essentially a depreciation rate of 100%.

There are thousands of companies misusing EBITDA. Pick an example of a public company with open books doing so. Picking a private company with closed books is just weird.

Article started with the GDPNow chart which is broken because of tariff front-running. Stopped reading there.

Prompt: write a long rant on US VCs aligning/hunting alpha in Trumps America

Exactly. This article covers too many different angles at low depth. You could just as easily view the government funding startups as a positive development, like how the CCP helps develop young companies in different sectors that are often difficult to break into.

Reply on news.ycombinator.com