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Re:Why Positive Cashflow Matters by gizmo686 on Monday September 09, 2019 @04:49PM (#20922328)
Doesn't said company still have assets? At some point, the company can just dissolve and liquidate its assets. Assuming the assets are worth more then the companies debt, this leaves something to distribute to shareholders.
Re:Why Positive Cashflow Matters by Someone on Monday September 09, 2019 @05:03PM (#20922461)
If the company hasn’t been cash flow positive over its lifetime, it is unlikely that the assets will be worth more than the debts.

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.

Re:Why Positive Cashflow Matters by pmart123 on Monday September 09, 2019 @09:56PM (#20924470)
Well, this is why it makes a lot more sense for startups to raise equity versus debt typically. There could be some exceptions such as using the debt to buy required hard assets, but typically, it makes very little sense.
Re:Why Positive Cashflow Matters by AmericanChopper on Monday September 09, 2019 @05:10PM (#20922527)
Not all negative cash flows are created equal. For most high valued companies that are cashflow negative, the deficit should represent a portion of their sales and marketing budget. In that case they are literally choosing to be cashflow negative as an investment in growth, and could choose to become cashflow positive at any point by reducing the sales and marketing budget. Obviously this depends on things like their CAC and LTV being healthy, but investors aren’t stupid, and in isolation being cashflow negative isn’t an indication about the sustainability of the company.
Re:Why Positive Cashflow Matters by mason55 on Monday September 09, 2019 @05:19PM (#20922589)
Your case (LTV > COGS + CAC) is accounted for in a standard DCF model. If you're planning to be cash flow negative for 30 years because of R&D costs then that's fine but you better have a model where 30 years from now you're able to beat 30 years of interest (and by quite a bit given the risk profile).

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.

Re:Why Positive Cashflow Matters by AmericanChopper on Monday September 09, 2019 @05:31PM (#20922672)
The existing customer base is an asset. If you can profit from taking a negative CF company, firing all the staff and collecting subscription fees from the existing customers until they all churn, then you have value that can be extracted from the company. These ”maintenance mode” acquisitions aren’t even that uncommon.

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.

Re:Why Positive Cashflow Matters by mason55 on Monday September 09, 2019 @05:14PM (#20922550)
I think that your argument is with the part about a company being worth $0 if it's not cashflow positive?

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.

Re:Why Positive Cashflow Matters by eru on Tuesday September 10, 2019 @06:15AM (#20926658)
You'd need to get the managers to dissolve the company.

Remember when Yahoo was worth 'negative dollars'?