[sumuyuda]

I think the main argument that it is theft, is that they contribute nothing to the continued surplus generated after their loan was repaid. So they effectively steal the profits like a parasite.

Why should they get ownership of the business? When you get a mortgage for your house, the bank doesn’t permanently own part of your house after you pay it off.

[labcomputer]

> Why should they get ownership of the business? When you get a mortgage for your house, the bank doesn’t permanently own part of your house after you pay it off.

Because the VCs are funding the startup on extremely favorable terms?

If the startup fails, the founders can just walk away. They are not personally liable for anything. They can (and often do) subsequently form another startup, often funded by the very same VCs who funded the one that just failed!

If, OTOH, you fail to pay your mortgage, the bank takes your house. And they make hard for you to get another mortgage from any bank by reporting the foreclosure to credit ratings agencies.

You absolutely can keep the equity (and surplus) for yourself… but you will need to personally guarantee the loan. You may need to declare bankruptcy if the startup fails, and all that entails.

VCs are happy to throw away money on 99 failed startups precisely because they are entitled to the continued surplus from 1 successful startup. Banks are happy to make failure to pay extremely unpleasant for you because they are not entitled to any surplus from business loans which lead to successful outcomes.

[yogurt-male]

> VCs are happy to throw away money on 99 failed startups precisely because they are entitled to the continued surplus from 1 successful startup.

And why is this a good thing? I think the past decade and the current bubble point to this being a bug, not a feature. What I mean to say is that VCs seem far too eager to throw money at ventures with untenable business plans or that lack any edge over competing firms, which is a waste.

[immibis]

What if we created a system where startups didn't require as much funding? Is the system set up in such a funding-intensive way in order to benefit VCs, who can swoop in and save the day? If so, rich people don't get any credit for solving a problem rich people created.

[Anon1096]

For one, in a mortgage the loan is secured by the house. But more importantly: you can get simple loans for startups too! Banks provide loans that are personally guaranteed (ie if the business goes under the founder is still on the hook). But if you want more money or something that is limited in liability then your pool of people willing to give money is much smaller and they usually want a stake in the business as a condition.

[ffsm8]

The opposite argument would be that the default should behave like the house then, so ownership should switch over to the person providing the loan entirely - instead of passing on part ownership forever.

But that's obviously less desirable to the person providing the money, and they've obviously got all the cards... Hence the argument of this post.

I wouldn't call it evil myself, unless I wanted to classify capitalism as evil in it's entirety - which would feel disingenuous to me, considering the alternatives were always worse in hindsight.

[godelski]

I think the main problem is that investors are investing in the wrong thing. They invest because they believe they can make a return, not because they think a valuable product will be made.

There's a subtle difference and it shows by how we even see wealth. We associate wealth with utility to society. That is, after all, why we create economies. We want to reward those who make society better.

But that's where there's been a disconnect. We figured out we could make money without pushing society forward. We'd historically refer to those people by different names... worse than that, we are focused on the short term. Silicon Valley has perfected the hype cycle. You get in cheap, pump up the price, sell, and do it all over again. It does not matter if it is vaporware, it matters that you can make a profit.

The problem is alignment. The economy is not aligned with its intentions.

Do we see much innovation these days? Is there even an incentive? No doubt there's innovation, but people are claiming it is accelerating. I'm unconvinced we're innovating faster than we did in the 90's. That decade changed society more than the 00's and 10's, even with the advent of the smartphone.

Unlike the author, I'm actually in favor of capitalism, yet I firmly believe that an economy still needs to by well regulated. There's very few economists who believe such regulation does not need to exist (we listen to partisans more than actual economists), and I've found even the most staunch free-market believers (often not actual economists) will have concessions. It's no secret that an unregulated market is not a free market. An unregulated market is a market regulated by the largest entities of the market.

It is probably no surprise that those who cannot think long term are unable to realize that the rise in popularity of socialism is due to the abuse of capitalism. Most people do not have a strong foundation in economics (why should they! They're spending years learning other skills than years reading textbooks, analyzing, and going to school). But people do know our system isn't working. Is it really more cost effective to build bunkers and buy private islands than it is to make the lives of the people better? I doubt it. But that's the same myopia I've discussed in my entire comment. The problem is how myopic we've become