This is how the economy is supposed to work. The people pouring billions into these companies are taking a calculated risk. It might work, it might not. If it does, we'll all get a bunch of cool new services. If it doesn't, those people will be out billions of dollars and we'll have gotten some cheap services for a while on their dime. They're taking a risk to create something new, and if it works, they'll be handsomely rewarded. If it doesn't, they'll lose all their money. That's ok, that's the system working.
> As others emphasized, it's totally possible for investors to get some exit before a bust, hoisting off the risk onto more naive later investors.
Yes it is possible. But people consistently overestimate how easy it is to do this. Would you bet billions of dollars on being able to fool other managers of billions of dollars? I wouldn't.
It's not that this is itself a straightforward strategy. It's that the possibility of this, even if odds aren't great are something that adds to the list of possible exits and thus reduces the total risk of an investment that isn't consciously intended to go this way.
Sure, but how much is that influencing decision making? If the probability of that is relatively small, you still need to plan to have a successful business.
I don't know how conscious people are, but in general there's surely awareness that as long as a business seems to be on track to success, investors have the possibility of some exit regardless of whether the business succeeds in the long-term.
For the most extreme variant of this, VC investors in Dropbox or YouTube or whatever don't need to care about whether those companies eventually go bankrupt.
So, investors might believe that Uber can actually make it, but as VC goes they are just looking at Uber being on track up to their exit. They don't actually worry about the deep long-term. So, there's less difference than you might think between consciously creating a false appearance and exiting versus believing (though perhaps wrongly) that the business will be viable beyond the exit. The VC folks are focused on the period up to their exit either way.
