Recently I read in a newspaper that Uber’s losses top $1 bn in its latest quarter (3 months), it has never made a profit and yet it is targeting a valuation of $120 bn next year. The company will complete 10 years of operations in March 2019, and have some big names (VC companies) as their investors. And believe me they will be ready to pump in more money if needed.
And this is not the only case in today’s world where investors are pouring money in the so-called high velocity and unicorn companies, which have never made a single dollar as profit and does not look like they will ever in the near future.
I remember being taught in B school and by my dad (a pacca baniya businessman) that the basic premise of any business is making profit. Whatever you may do and whatever the scale, the ultimate goal is to earn money, if not then open an NGO – to create social impact.
I always wonder when I read about these companies, what is the incentive to the investors to invest big bucks in companies which are making losses at such levels, that atleast in the near future there is no hope of making money.
And infact every time a consumer uses their services, their losses add up. But in the investment world their market capitalisation increases. So, in this new world, businesses are measured on the basis of the traction received and number of clients acquired, bottom line has no role to play for who cares about profits any more.
So, in a nutshell the VC and investor money are funding the big consumerist drive in the world by offering subsidies to us for our day to day services. So, either it is doing the government job of boosting the economy or that of an NGO taking care of us.
To explain this, I have this wonderful theory, As financial inequality in the world grows, the divide between people is increasing to disproportionate levels. There are people who have so much money that they have no clue how much and what to do and on the other side you have people dying of malnutrition. So, in effect the funding of start-ups is actually redistribution of wealth from the haves to the have nots.
How? Simple all the investor money goes in recruiting people at all levels which helps bring home salary to otherwise unemployed and on the other hand makes services affordable to consumers by selling below cost price, thereby increasing the standard of living of the general population. So basically, money is flowing from the haves to the have nots.
Maybe time to relook at the VC’s as NGO’s for the middle class!