7 ms·

What's the point? This is a common risk for all companies.

toomuchtodo 8y ago
Not companies going public (historically). It’s only recently these hot messes of unprofitably are getting dumped on the public markets. VCs are for gambling, public markets are for profitable businesses.
- captn3m0 8y ago
  Any reason why this should remain the status quo? Why shouldn't the general public be allowed to invest in slightly-risky ventures?
  - toomuchtodo 8y ago
    Because the public are not accredited/sophisticated investors. It's to prevent them from being swindled. How much did professional investors lose on Theranos alone (answer: Somewhere between $600-$800 million)?
    - madengr 8y ago
      Recently looked up "accredited investor". Joint income of > $300k and net worth (minus house) of > $ 1M. I wonder if someone actually does the accrediting.
      - icedchai 8y ago
        It's actually > $300k income or > $1M net worth. And, no, nobody does the accrediting. It's basically an honor system.
        eganist 8y ago
        >300k income joint, >200k income single, or >1m excl. primary residence in any event. Paraphrasing an attorney from years ago: The risk of lying to invest in something only open to accredited investors is colossal both to the entity raising funds as well as to the investor, and it can/does get caught during diligence, so it's not so much an honor system as it is something that inevitably gets audited/managed either down the road or especially when something goes wrong. This may have changed and my recollection may not be accurate. Lastly, this isn't legal advice given that I'm not a lawyer.
    - bduerst 8y ago
      That's a different definition of 'general public'. Most of the public you're referring to are not pouring their savings into these IPOs. Even so, the SEC shouldn't require companies to be profitable in order to be publicly traded - could you imagine if we took every non-profitable company private because the public needed to be protected?
  - bohemiantorres 8y ago
    Because that's not investing and it's also not "slightly-risky," it's straight-up risky.
- donald123 8y ago
  Pretty common for tech companies, same like amazon IPO back in 1997, if that's what you meant "recently".
- icedchai 8y ago
  Sure, if you define "recently" as the past couple decades...
- kaycebasques 8y ago
  Hyman Minsky argues that "hot messes of unprofitability" tend to be a common phenomenon after long periods of economic success. Stability breeds instability. Tech didn't introduce this behavior. > In particular, over a protracted period of good times, capitalist economies tend to move from a financial structure dominated by hedge finance units to a structure in which there is large weight to units engaged in speculative and Ponzi finance. Furthermore, if an economy with a sizeable body of speculative financial units is in an inflationary state, and the authorities attempt to exorcise inflation by monetary constraint, then speculative units will become Ponzi units and the net worth of previously Ponzi units will quickly evaporate. Consequently, units with cash flow shortfalls will be forced to try to make position by selling out position. This is likely to lead to a collapse of asset values. "The Financial Instability Hypothesis", p. 8 [1] [1] http://www.levyinstitute.org/pubs/wp74.pdf http://www.levyinstitute.org/pubs/wp74.pdf
  - komali2 8y ago
    What does a "Ponzi Unit" mean in this context?
    - kaycebasques 8y ago
      > For Ponzi units, the cash flows from operations are not sufficient to fulfill either the repayment of principle or the interest due on outstanding debts by their cash flows from operations. Such units can sell assets or borrow. Borrowing to pay interest or selling assets to pay interest (and even dividends) on common stock lowers the equity of a unit, even as it increases liabilities and the prior commitment of future incomes. A unit that Ponzi finances lowers the margin of safety that it offers the holders of its debts. Hedge units, in contrast: > Hedge financing units are those which can fulfill all of their contractual payment obligations by their cash flows: the greater the weight of equity financing in the liability structure, the greater the likelihood that the unit is a hedge financing unit. Speculative finance units are units that can meet their payment commitments on "income account" on their liabilities, even as they cannot repay the principle out of income cash flows. Such units need to "roll over" their liabilities: (e.g. issue new debt to meet commitments on maturing debt). Governments with floating debts, corporations with floating issues of commercial paper, and banks are typically hedge units.
- gammateam 8y ago
  1980 called
- yzmtf2008 8y ago
  I think that really just means that the market has changed and you're no longer for this market, rather than that new companies are not for public market. Market is literally made up of the companies and people that participate in it.
  - toomuchtodo 8y ago
    That's fair. Just keep this risk out of my index funds. I'm a long term investor, not gambling with unprofitable "high growth" equities.
    - icedchai 8y ago
      You really should do both. A small amount of your funds should go in to high growth. One of my gambling portfolios is full of high growth semi-conductor stocks like AMD and MU, and SaaS stocks like CRM and HUBS. I have triple digit returns for the past couple years.
      - deleted 8y ago
        [deleted]
      - adventured 8y ago
        > You really should do both. A small amount of your funds should go in to high growth. Projecting your subjective investing preferences, risk vs return, onto someone else doesn't work. If someone is only comfortable investing in very low risk assets that will always produce a low return, there is absolutely nothing wrong with it. It strictly comes down to what you personally want out of the total equation.
        toomuchtodo 8y ago
        Spot on. Everyone's investing goals and risk tolerance levels are different. It'd be criminal to put my 87 year old grandmother in high growth, unprofitable equities.
- pbreit 8y ago
  Eventbrite has gotten close to profitable which I assume made them feel comfortable stepping back up the investment into growth (which achieved 61% 1H17 to 1H18). Probably will be awhile before it makes its way into indexes so I wouldn't worry about that now.
koolba 8y ago
Traditionally companies achieved profitability before trying to bilk the average Joe's 401k.
codingdave 8y ago
> This is a common risk for all companies. That simply isn't true. There is validity to scaling while incurring losses, and requiring funding to do so. But that doesn't mean that all companies are in that boat. Certainly not all companies that are publicly traded. So the statement is a reasonable description of where the company is at, allowing potential investors to judge for themselves whether that meshes well with their own risk profile.
- donald123 8y ago
  Any example of what kind of companies have absolutely no risk of "not be able to generate sufficient revenue to achieve and maintain profitability"?
  - nightski 8y ago
    That is essentially the definition of a blue chip stock.
    - donald123 8y ago
      No, that's not true. A company may have been profitable for many years, but there is still risk of it becoming nonprofitable anytime in the future.
  - codingdave 8y ago
    Not a single profitable company in the world has to increase revenue to achieve profitability. By definition, they are already there. The risk faced by all companies is that poor strategic decisions will cause a decrease in revenue, eventually leading to a loss of profitability. But that is a totally different statement.

Not companies going public (historically). It’s only recently these hot messes of unprofitably are getting dumped on the public markets. VCs are for gambling, public markets are for profitable businesses.

captn3m0 8y ago
Any reason why this should remain the status quo? Why shouldn't the general public be allowed to invest in slightly-risky ventures?
- toomuchtodo 8y ago
  Because the public are not accredited/sophisticated investors. It's to prevent them from being swindled. How much did professional investors lose on Theranos alone (answer: Somewhere between $600-$800 million)?
  - madengr 8y ago
    Recently looked up "accredited investor". Joint income of > $300k and net worth (minus house) of > $ 1M. I wonder if someone actually does the accrediting.
    - icedchai 8y ago
      It's actually > $300k income or > $1M net worth. And, no, nobody does the accrediting. It's basically an honor system.
      - eganist 8y ago
        >300k income joint, >200k income single, or >1m excl. primary residence in any event. Paraphrasing an attorney from years ago: The risk of lying to invest in something only open to accredited investors is colossal both to the entity raising funds as well as to the investor, and it can/does get caught during diligence, so it's not so much an honor system as it is something that inevitably gets audited/managed either down the road or especially when something goes wrong. This may have changed and my recollection may not be accurate. Lastly, this isn't legal advice given that I'm not a lawyer.
  - bduerst 8y ago
    That's a different definition of 'general public'. Most of the public you're referring to are not pouring their savings into these IPOs. Even so, the SEC shouldn't require companies to be profitable in order to be publicly traded - could you imagine if we took every non-profitable company private because the public needed to be protected?
- bohemiantorres 8y ago
  Because that's not investing and it's also not "slightly-risky," it's straight-up risky.
donald123 8y ago
Pretty common for tech companies, same like amazon IPO back in 1997, if that's what you meant "recently".
icedchai 8y ago
Sure, if you define "recently" as the past couple decades...
kaycebasques 8y ago
Hyman Minsky argues that "hot messes of unprofitability" tend to be a common phenomenon after long periods of economic success. Stability breeds instability. Tech didn't introduce this behavior. > In particular, over a protracted period of good times, capitalist economies tend to move from a financial structure dominated by hedge finance units to a structure in which there is large weight to units engaged in speculative and Ponzi finance. Furthermore, if an economy with a sizeable body of speculative financial units is in an inflationary state, and the authorities attempt to exorcise inflation by monetary constraint, then speculative units will become Ponzi units and the net worth of previously Ponzi units will quickly evaporate. Consequently, units with cash flow shortfalls will be forced to try to make position by selling out position. This is likely to lead to a collapse of asset values. "The Financial Instability Hypothesis", p. 8 [1] [1] http://www.levyinstitute.org/pubs/wp74.pdf http://www.levyinstitute.org/pubs/wp74.pdf
- komali2 8y ago
  What does a "Ponzi Unit" mean in this context?
  - kaycebasques 8y ago
    > For Ponzi units, the cash flows from operations are not sufficient to fulfill either the repayment of principle or the interest due on outstanding debts by their cash flows from operations. Such units can sell assets or borrow. Borrowing to pay interest or selling assets to pay interest (and even dividends) on common stock lowers the equity of a unit, even as it increases liabilities and the prior commitment of future incomes. A unit that Ponzi finances lowers the margin of safety that it offers the holders of its debts. Hedge units, in contrast: > Hedge financing units are those which can fulfill all of their contractual payment obligations by their cash flows: the greater the weight of equity financing in the liability structure, the greater the likelihood that the unit is a hedge financing unit. Speculative finance units are units that can meet their payment commitments on "income account" on their liabilities, even as they cannot repay the principle out of income cash flows. Such units need to "roll over" their liabilities: (e.g. issue new debt to meet commitments on maturing debt). Governments with floating debts, corporations with floating issues of commercial paper, and banks are typically hedge units.
gammateam 8y ago
1980 called
yzmtf2008 8y ago
I think that really just means that the market has changed and you're no longer for this market, rather than that new companies are not for public market. Market is literally made up of the companies and people that participate in it.
- toomuchtodo 8y ago
  That's fair. Just keep this risk out of my index funds. I'm a long term investor, not gambling with unprofitable "high growth" equities.
  - icedchai 8y ago
    You really should do both. A small amount of your funds should go in to high growth. One of my gambling portfolios is full of high growth semi-conductor stocks like AMD and MU, and SaaS stocks like CRM and HUBS. I have triple digit returns for the past couple years.
    - deleted 8y ago
      [deleted]
    - adventured 8y ago
      > You really should do both. A small amount of your funds should go in to high growth. Projecting your subjective investing preferences, risk vs return, onto someone else doesn't work. If someone is only comfortable investing in very low risk assets that will always produce a low return, there is absolutely nothing wrong with it. It strictly comes down to what you personally want out of the total equation.
      - toomuchtodo 8y ago
        Spot on. Everyone's investing goals and risk tolerance levels are different. It'd be criminal to put my 87 year old grandmother in high growth, unprofitable equities.
pbreit 8y ago
Eventbrite has gotten close to profitable which I assume made them feel comfortable stepping back up the investment into growth (which achieved 61% 1H17 to 1H18). Probably will be awhile before it makes its way into indexes so I wouldn't worry about that now.

koolba 8y ago

Traditionally companies achieved profitability before trying to bilk the average Joe's 401k.

codingdave 8y ago

> This is a common risk for all companies. That simply isn't true. There is validity to scaling while incurring losses, and requiring funding to do so. But that doesn't mean that all companies are in that boat. Certainly not all companies that are publicly traded. So the statement is a reasonable description of where the company is at, allowing potential investors to judge for themselves whether that meshes well with their own risk profile.

donald123 8y ago
Any example of what kind of companies have absolutely no risk of "not be able to generate sufficient revenue to achieve and maintain profitability"?
- nightski 8y ago
  That is essentially the definition of a blue chip stock.
  - donald123 8y ago
    No, that's not true. A company may have been profitable for many years, but there is still risk of it becoming nonprofitable anytime in the future.
- codingdave 8y ago
  Not a single profitable company in the world has to increase revenue to achieve profitability. By definition, they are already there. The risk faced by all companies is that poor strategic decisions will cause a decrease in revenue, eventually leading to a loss of profitability. But that is a totally different statement.