And don't forget Amazon. They aren't venture backed but they have access to capital at cheaper rates than most countries due to their position as a stock market darling. They use ultra-cheap money and a willingness to run negative margins which they refer to "reinvesting in the business" to bleed competitors dry. Few other companies on the planet have the ability to run negative or break-even margins the way Amazon does.

Diapers.com example: "When Bezos’s lieutenants learned of Wal-Mart’s counterbid, they ratcheted up the pressure, telling the Quidsi founders that [Bezos] was such a furious competitor that he would drive diaper prices to zero if they sold to Bentonville. The Quidsi board convened to discuss the possibility of letting the Amazon deal expire and then resuming negotiations with Wal-Mart. But by then, Bezos’s Khrushchev-like willingness to use the thermonuclear option had had its intended effect. The Quidsi executives stuck with Amazon, largely out of fear. The deal was announced Nov. 8, 2010."

https://slate.com/technology/2013/10/amazon-book-how-jeff-be...

In international trade this is called “dumping”, and it’s often considered illegal and most definitely unfair

It’s usually used as a reason for regulating imports/exports

https://www.investopedia.com/terms/d/dumping.asp#:~:text=Dum....

I'm so jaded by modern startups and venture industry. There are people who've built entire careers building unprofitable companies that only sell products to other unprofitable startups and eventually get acquired by other unprofitable startups.

It's a gigantic game of hot potato that swallows up a gigantic pool of human talent, all for producing stuff that really adds little to no positive to the world.

If they're not disrupting (read: destroying) local economies, they're breaking all local rules and regulations. And despite playing fast and loose with any sense of ethics or legal compliance, they still can't be profitable.

Just end this ponzi.

This feels related to the idea in "Billionaires, Surplus, and Replaceability" (1)

Basically, if, say, Jeff Bezos never existed, it seems likely that someone else would have created Amazon, perhaps a few years later, and maybe not quite as good. "Big online retailer" is sort of a natural niche, with a bit of a natural monopoly. So while the classic argument for letting people keep most of their wealth gained in the free market is that they provided a lot of value, maybe that doesn't make as much sense when you consider that if they hadn't done it, somebody else probably would have soon after.

It's obviously impossible to gauge exactly how much excess value someone provided compared to the world in which they never existed, but to round it up to 90% or doesn't seem very accurate.

So it seems like in our current world, there's a winner-take-all effect that a lot of venture-backed startups are trying to exploit. If we were a lot more aggressive in taxing companies like Amazon, my intuition is that it would go a long way toward reducing this effect.

(1) https://astralcodexten.substack.com/p/billionaires-surplus-a...

I believe a lot of this was driven by fed rate shenanigans creating far more investment wealth than there were organic opportunities for investing it. All of these market-distorting startup deals were just symptoms of that broader systemic monetary policy error.

While the mom and pop taxi companies and others impacted by it have my sympathy and support, all the regulatory alternatives other than waiting until they achieve a monopoly and then breaking them up seem to cause as many problems as they aim to solve.

I assume this is showing up in part because it was discussed recently in Matt Levine's Money Stuff [0]; it's an amusing (if short) discussion.

[0] https://www.bloomberg.com/opinion/articles/2023-05-18/tether...

Wasn't this dressed up and sold to the masses as blitzscaling just a few years ago?

I like the term "venture predation" better.

Other thing we need to talk about is when funded startups run customer service that is not sustainably financed. Everybody apparently loves this and celebrates that the great service and listening to its customers.

But it is just the same thing: predatory pricing applied to a product delivered with high-end customer service.

Edit: Example: $5/month Todo list SaaS that has a 24h customer support telephone helpline

Funny to see nobody's mentioned Cloudflare yet. They're not making any money: This is presumably their exact plan: Offer CDN services and other web infrastructure services at a loss for a prolonged period of time until the competition is destroyed, then jack up rates and eat the market.

Very often the unit economics at smaller scales doesn't work, but then works great at a large scale. I don't think it's immoral to gamble on achieving the high scale later and investing in the company to shoot for that scale. If no one can achieve profitable unit economics early on and you aren't allowed to have unprofitable unit economics then no one will make the product. I think this is bad for innovation. Is this the same as "venture predation"? It sure seems that way. How could you tell it apart?

Easy to criticize but to be consistent you'd also have to consider non-VC-backed products dumped at below price by regular companies too, and that would get uncomfortable real fast:

- Chrome

- VS Code

- LetsEncrypt

- Everything open source

etc. Sometimes I wonder how much this practice distorts the software industry, preventing new innovations from happening. The industry settled on this approach without being forced to, so I wouldn't want legal changes to prevent it either, but it's worth a bit of self-reflection on how much we all love free stuff.

I'm part of the problem. I always suspected my Uber ride was financed with venture money. So i always went with Uber. But i didn't think ahead to the fact that it would kill off the competition.

What i don't get it is what the Uber moat is? Why does this need to be centrally planned and controlled? Would an open source and free platform work where drivers got near 100 percent of the sale instead of the 75% they get today.

From the abstract:

"A venture predator is a startup that uses venture finance to price below its costs, chase its rivals out of the market, and grab market share. Venture capitalists (VCs) are motivated to fund predation—and startup founders are motivated to execute it—because it can fuel rapid, exponential growth. Critically, for VCs and founders, a predator does not need to recoup its losses for the strategy to succeed. The VCs and founders just need to create the impression that recoupment is possible, so they can sell their shares at an attractive price to later investors who anticipate years of monopoly pricing."

Everyone on HN knows this is exactly the playbook of many fast-growing VC-backed startups. No need to mention names.

This is essentially how Carvana has decimated the private used car market in my area. Only instead of low product prices, they offer well-above market value for used cars to private sellers so that Carvana becomes the only source for a car that fits your criteria.

I remember a game on the Apple ][ that was basically a simulation of the bicycle manufacturing business

you could tweak various "fair" parameters like quality and price

but I guess the makers of this were naive and never considered any "unfair" practices like getting cheap cash and wiping out the competition

A flipside effect to this is advertising and PPC which has trended up so high overtime, especially in education.

Strategies viable in 2019 are largely useless to bootstrapped businesses in 2023: the costs of ads even to acquire customers with low spending power is two to three times what it was (e.g. students)

As someone working on a NLP product for education, the pricing and subscriptions are also dropping rapidly, lead by the funded companies entering this niche (the founders almost entirely are non technical recently). The combination of the two is like a jaw - it's unclear what to do when your technology becomes a trend, other than grab and deploy your own funding and use marketing strategies and technical efficiencies to outlast your competition.

Losing money while you grow isn't neccesarily bad.

Venture Capital at its best allows a company to take losses until it can achieve economies of scale.

I'd say it turns predatory when even after achieving scale(Like Uber or Amazon) a company still runs an unprofitable business to choke out competitors.

How can you prove this in court? No clue. Maybe the company has to articulate the explicit economy of scale it hopes to achieve and how?

Are there any that are actually successful with this strategy? Uber and Lyft, for one, but they still don't make profit and aren't really that sticky, honestly, given that people will use other services if they're cheaper, like Waymo and some new ride sharing upstarts I've seen around recently.

Wait, it's predatory pricing traditionally understood to be aimed at consumers/customers. Applying the term to sketchy pricing practices aimed at competitors is a bit novel in my book. I feel like words are being misused here.

I am a founder of a bootstrapped B2B SaaS business. A VC-founded competitor that can burn through money offering subscriptions at unsustainable prices (e.g. $20/month) is the main fear keeping me up at night.

Probably more aptly named 'Venture Dumping' because 'dumping' would be a bit more like the classical term but that just doesn't have the right 'ring' to it.

Best part in my opinion?

One of the requirements in the RFP was "Windows to View Our Home Planet and the Moon".

The last sentence is "They must be present and cannot be substituted".

Unfortunately before regulators have time to react, the intended effect: Driving out small businesses, has already taken place.

There are two kinds of VC funded startups - Those that give money to customers and those that give money to employees.

The response from regulators should be: Let VCs waste their money.

This is an extremely weak analysis from an economics point of view. The regulator has several options to deal with monopolists if and when they emerge.

If consumers realize benefits in the meantime in the form of cheap products subsidized by VC money that’s a good thing.

Don't airlines do this all the time to prevent new entrants? How is this not provable?

Reminds me of the game Capitalism[0] where the player was incentivized to achieve monopoly in markets by selling below-cost, subsidized by the other parts of the business. Vertical integration was also highly encouraged.

[0] https://en.m.wikipedia.org/wiki/Capitalism_(video_game)

Pricing below costs is the opposite of a problem for consumers (in the short term…). “Predation” in this case refers to competing businesses, who often have enjoyed a long period of monopoly rents.

Isn't this more or less just loss leading?

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For academics I think this is fine, the whole job is to look for new extensions of the law. But it shows how very far we are from any kind of basis for "stopping tech."

Gonna be hard to achieve consensus around "raising fares and lowering driver pay" which is the opposite of what Uber did.

"Uber showed that venture predation works. Uber raised around $24 billion from private investors and used it to subsidize cheaper fares for riders and higher pay for drivers. Uber quickly crushed the taxi companies and acquired a dominant share of the combined taxi-and-ridehailing market.27 But it never developed a superior product or cost efficiency. Lyft, other ridehailing startups, and even taxi companies developed similar apps. Uber had to keep up its below-cost pricing to maintain its market share. In each of the three years before its IPO, Uber racked up losses of $3 billion or more.29 Uber reassured investors by explaining that, once it became dominant, it would be able to raise prices and recoup its losses. In its IPO roadshow, Uber’s executives told investors that they expected the company to earn an adjusted profit." ... "We concede that the “millennial lifestyle subsidy” was fun." ...

Then a lot of handwaving. But no victims other than bad high margin businesses. (There's a theoretical driver that doesn't realize the high pay won't last forever and buys a car, but he can sell it no? And he could read the news about his livelihood and learn that his high pay is at risk).

Btw, you can still take taxis. It'll cost more and pre uber they were very surly or wouldn't show when you called them. The only "regulate Uber" consequence will be higher ride costs and lower paid drivers.

Amazon operates on very tight margins in it's retail business. The ideal case is lots of competition, which would lead to uh... very tight margins among competitive firms. Amazon is just smart enough to get ahead of that. And I think their long term goal has been to operate at such a low cost structure that they have a durable advantage in cost. And then to pour back all their capital back into lowering their cost structure.

So why stop them? In order to subsidize the higher cost company, their private jets and sexual harassment lawsuits?

Capital is very easy to get in 2023. We are not in the time when capital is so difficult to get that you'd need a 2 generation family firm just to build a single factory. At that point spending 5 years to crush your competitor might have made sense. But now it's limited to monopoly markets like cable, and cell phone service. And it might indeed be useful to create more competition there.

Unlike Amazon I think Uber isn't likely to be a great business. There is just no cost structure advantage being built. So they'll either operate on low margins forever or they'll raise prices and we'll get competition in the space of a few years. In either case I would not want to hold Uber stock right now.

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You. don't. say. Really?!? OMG, what an insight! What are they going to say next? That startups also use the good will of the internet to create their IP to then take it private as a way to get free labor? I'm shocked! And because this is also the internet, that was sarcasm.