For brevity I omitted all of the dot-com flameouts and also the Web 2.0 startups that never got off the ground, but IMHO they support my larger point.

In the late 90s we had a lot of companies that took a lot of money, and the founders and employees got nothing out of them other than painful experiences. When you look at one of the successful "fat" startups (PayPal), Max Levchin's take ($34M) of the $1.6B acquisition was on the same order as the Wufoo founder's take of their $35M acquisition, or the Viaweb founders take of their $49M acquisition. Even Amazon - probably the most successful "fat" startup in history - languished below its dot-com peak until AWS came out in 2007.

Margins matter. Capital efficiency matters. If you want to actually make money, you should make lots of profits on small amounts of invested capital, not lose lots of money on large amounts of invested capital.

But what if your competitor is willing to lose lots of money on large amounts of invested capital until you are out of business?

Uber and Lyft have it tough in that regard. At the end of the day they've got product market fit in a profitable industry. I mean the very worst case is they become more efficient cab companies, and cab companies have been making money for a very long time.

Their prices are artificially low due to competition, and they are in sort of a prisoner's dilemma. eventually one of them will go broke and the other will raise prices, or something will change about the market (such as driverless cars coming). But if one of them passes up raising and losing money they lose.

Then you have a lousy business model, and you aren't going to make lots of money, and you aren't going to create lots of value, and, as a result, probably won't get a massive payout.

I don't think that's true. Uber's business model is the same as every cab company, but better. It's just a temporary problem (competition forcing them to sell below market value) that they need to overcome.

Their financial struggles are due to them pricing well below what taxi cabs do. But if Uber priced the same as cabs they'd still be an infinitely better service and make lots of money, once Lyft isn't there undercutting.

It reminds me a lot of airlines. They were all hemorrhaging money similarly, even for a decade or two after deregulation, until they consolidated down into a few and raised prices.

Are you arguing that the US airline industry spins profits? I mean, sure, you have some carriers like Southwest which do, but as a friend of mine once put it, the US airline industry exists mainly as an outlet for Boeing to sell airplanes...

That was true for a long time but hasn't been for awhile. They now are mostly profitable. Delta makes almost as much as Southwest and the other majors are still in the billions.

Either way the point still stands: raising too much money transfers the economics and control away from the people involved in day to day operations.

As employees get more educated around stock options I’m certain their risk profile will change and founders will find it harder to rally a tribe around airy promises of a future exit.

I’d have an easier time agreeing with your last point if I didn’t remember thinking the same thing around 2001. Part of why this model works so well for the owners is that there’s always a fresh crop of young people who love the heavily-marketed dream and are willing to devote most of their life to making someone else rich, never realizing how badly outclassed they are by the money guys.

Well of course. If he used examples that crashed and burned the reader would not have heard of them.