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Comment by ThomPete | Hacker News Reader

If airbnb can't become a successfully profitable company based on their current revenue and trend, there is a serious problem with the VC model. It's like watching the sub-prime loans just keep on going because no one have any understanding of what is going on.

In my mind this is part of an absolutely absurd game where a little groups of tightly knitted VCs leech onto each others successful investments to pump up some crazy valuations which they can then use to make even bigger.

There will be a correction to this sooner or later and it's going to be affecting alle the other already undervalued tech companies out there.

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When choosing between immediate profitability or faster growth, the smart decision is typically faster growth, as that leads to much greater profits down the road.

Remember when the HN crowd thought that Facebook could never be profitable because they were making the same tradeoff?

Facebook is one example. Not exactly enough to establish a new approach to business making.

When discussing multi-billion dollar web startups in the consumer space, there are only so many examples to draw from.

Yes and Facebook is probably one of the only of those who started with growth rather than looking for profit that has in fact become profitable. But they still haven't managed to make the amount of money back that was invested in them.

According to CrunchBase, facebook has raised roughly $2.1B totally (including their IPO, which accounted for $1.5B of that). [0]

In 2014, facebook totalled roughly $3B net income [1]. So they made dramatically more money back in the last year than they raised totally and will probably continue to do so.

[0] https://www.crunchbase.com/organization/facebook/funding-rou...

[1] http://investor.fb.com/secfiling.cfm?filingID=1326801-14-7&C...

The filing in [1] lists net income as $1.5 billion. It doesn't invalidate your point but just wanted to point that out.

Yeah you are right.

Multi billion dollar startups are so rare that trying to mimic them is a fools errand. It's the same logic from people that say, "Bill Gates dropped out of college, and look how rich he is!"

When a company is growing, it's not the p&l that matters. It's the contribution margin (CM) (revenue less _all_ variable costs - including those "below the line", like SG&A, that scale with your customer base) that matters. It can make financial sense to spend tons of cash (all you generate and then some through outside financing), as long as you're spending less to acquire and keep customers than they'll spend with you. It can be hard to tell, even for a good investor, if a company's true CM is positive, and my guess is that many fast growing companies have zero or negative CM. I'd guess that Airbnb's is quite positive.

Sure but that doesn't change the fact that they don't need the money, they could do it with their own current revenue and still be in the lead.

This to me looks more like a for investors to milk the value of an AirBnB that is doing quite well already and doesn't need those money.

Would it be imprudent to point out that the late stage rounds aren't being done by VCs?

No but that doesn't change the fact that its the same people involved in that small ecosystem.

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