If you want to know more, look up “moral hazard” and “real options”.
However, theory and practice are identical only in theory. If there is a company with negative projected cash flows relying on a negative-expected-value project succeeding unexpectedly that company is probably near worthless. If ordinary investors are relying on "maybe things won't turn out the way we expect them to"-style logic to make their investment decisions then the market is doomed.
Well, Uber is an exception to this rule apparently.
The way I read the GP, they're just saying that LLCs are good to be used for gambling.
Nowadays it’s almost every company betting their whole business hoping that their product will come out on top or they’ll let the public pay for the debt through IPOs.
For example, the generation that remembered the Great Depression and its aftermath did not fully pass from power till around 1990, for instance the elder President Bush.
After that the risks did not seem so great.
Personally, I'd counter it was the inequality compression caused by WWII that lead to the prosperity of the 50s and 60s.
Or in other words, on the timescale of decades, the mob of capital doesn't act in its own best interests. Because individual greed overcomes sustainability.
I think it was the entire productive capacity of the remaining world being bombed to destruction was the reason the USA experienced prosperity during that period. The US dollar becoming the international reserve currency probably helped also.
Just to clarify, I'm not trying to make the claim that the US was prosperous during that period solely because I think the war created more conscientious people. But I do think part of the reason you saw that prosperity distributed better and had things like pensions was because people back then had a better sense of what the cost of NOT distributing more fairly is, along with a better sense of the importance of camaraderie. That's an admittedly romantic view of the time, but I think there's truth to it. Widespread adoption of computers has lead to huge increases in prosperity after that period, and I think part of the reason that hasn't be shared is that the generations since then are more child like and have less of a sense of responsibility.
Although obviously war is horrible and hugely detrimental on net, I think the one silver lining is that you are put into life threatening situations in which you NEED to trust the people around you. Political backstabbing, greed, brown nosing, refusal to take responsibility, laziness... these will get you and/or the people around you killed. I believe people that go through that tend to put more emphasis on creating healthy, sustainable, working organizations than their own self aggrandizement.
When people come on hard times during recessions, I don't think the dynamics are such that it makes strong people, necessarily, or that it offsets selfish impulses in the same way something deeply scaring and emotionally impactful like war can. But I do think people that come out from recessions figure out what lead to the bad times, and generally come out stronger in that they're less likely to repeat the same mistakes.
You can't serve next to folks in combat situations and look at "others" with quite the same distain as is evidenced today.
Investments in machinery almost invariably depreciate significantly the moment they are bought, and salaries paid to personnel, electricity to power the lights in your office building, money spent on legal, etc, all lead to zero assets.
It can happen if most of the assets are products the company made, and the company can produce them below market value, but then, why would it have have products in store, and not sell them?
There are exceptions, but they’re easily recognized. On the one hand there’s seasonal demand: companies growing Christmas trees, or producing umbrellas, hockey skates, etc.
On the other hand, there’s companies with long production times such as whiskey distillers or factories building nuclear plants.
Grandparent was talking about the case where CF never goes positive. In that case the company in theory still has some shareholder equity by way of assets. But in reality, especially for something like a software company, there aren't going to be a lot of assets to strip out when you unwind the company.
But that said, it’s not exactly obvious which funded companies will never be profitable. If it was then you’d expect it would be quite hard for them to secure funding. This is simply a conclusion that many HN commenters love to jump to when deriding a particular company, usually without a very good understanding of the company’s financials, or even of finance in general.
In theory that's the case but obviously it depends on a lot of factors, and if we're talking about software startups then they typically would have very little in terms of assets to unwind. Maybe some office furniture or a bit of IP. But most of the cash is going to stuff like employee salaries, leasing office space, and cloud computing infrastructure, so by the time you decide to shut it down there's going to be very little left in terms of shareholder value.
Remember when Yahoo was worth 'negative dollars'?
What happened before 2008/2007 does not apply now.
This article talks about what negative cash flow means for the company. But what does it mean for the investor? A company that cannot go cash flow positive is worth zero - the value of the company is max(all future cash flows discounted by the interest rate curve, 0). The max(, 0) comes from the concept of the limited liability company.