This is a typical cycle for a venture backed technology business. There’s just nothing else to say here other than this is 100% expected outcome if you decide to build a product on venture capital money, which requires an exit and an increasingly large exit to the point where you IPO.
Unless you avoid this structural pathway, you will be 100% guaranteed to do this.
I am unaware of a venture capital funded technology company that has maintained the core of what they do, and the value proposition, but didn’t push most of their money into paying for sales marketing executive compensation and eventually finally, stock buybacks, or other things that directly enrich investors at the cost of employees.
Having had a couple points with Jeff Lawson I believe he’s a good person who wants to do the right thing for the most amount of people and do it ethically, which is why he jumped into this thread. However, he faces the same pressures as everybody else, and so it’s honorable that he is attempting to find ways to mitigate the downside harms of this new direction but at the end of the day the arrow of history is clear.
Venture capital has been long gone from Twilio at this point. It's a public company and no matter what the history of how the company raised the capital to build its business initially, it is simply acting as a public company now. Had they chosen to stay private and continue to use venture capital, they may not have had to reposition the way they have. See: Stripe.
Plenty of privately owned businesses IPO and become subject to the same forces. Less than 50% of publicly listed companies are VC backed.
I think they were saying that a investor-backed company only has a pathway to either (a) acquisition, likely by a public company, or (b) going public. Investors need (a) or (b) to get a payout, that's their business model, that's the reason they invest in your company.
If you avoid the venture investor route, you can avoid both outcomes (a) and (b), keep the company privately owned, just stay awesome and customer-friendly forever, and avoid being forced to eventually prioritize shareholders over customers.
All the perfectly-successful, privately-owned companies seem to have a price at which they eventually sell out to a soulless conglomerate, q.v. StackOverflow and GitHub.
(a) Some dude is making $500K/year at Google or $250K/year elsewhere or whatever
(b) They start a privately-owned company and hit $1M/year personal income and are pretty happy, at least happy enough to not want to go back to working for someone else
(c) But then soulless conglomerate offers them $20M+ in one go for an acquisition
I don't blame them for taking the $20M. It can be a life-changing amount of money.
Yes, every business needs to be recapitalized at some point. There is an entire industry that focuses on finding the non-public companies that OP mentions. It's called Private Equity and they buy these companies when they have come to the end of their natural cash flowing life.
The owners have either (at great pain) developed a sufficient capital base and succession plan to provide continuity (which would require significant ongoing investment in R&D out of cash flow in order to develop competitive products), or they must find a plan for the business. Going public solves this problem for them, so does selling privately. Neither option really eliminates the requirement to remain competitive.
Story after story involving a business getting bought by private ends with the PE 1) buying an ENORMOUS amount of debt based on the goodwill of the history of the company, 2) giving themselves ENORMOUS bonuses, and then 3) filing bankruptcy and liquidating. This is an entire AREA of business that should just not exist. It would seem that "investors" selling debt to these PE parasites would learn their lessons, but I expect that the even-bigger lesson is that they're all in on the grift together, and they're ALL making money somehow.
Stock buybacks represent excess profits which otherwise could be used for employee bonuses or salary raises. There's a lot of room for argument here, because it's not clear if in the absence of stock buybacks, that excess profits wouldn't go more directly into the pockets of the owners via direct capital withdrawal.
But it's not an entirely invalid viewpoint. There really is a lot of room for reasonable minds to disagree.
There is no such thing as "excess profits" -- people start businesses and invest in businesses in order to get rich. Anything less than "excess profit" isn't enough profit.
I can’t believe I’m saying this, but that’s anti-capitalistic in an original sense.
One purpose of the free market is to deliver the best value to consumers at the lowest expense possible. If a company is making excessively vast profit, then there isn’t enough competition making a cheaper product of the same value to the consumer.
‘Excess profit’ can be argued as the free market not working. Profit has no value to humanity if the system doesn’t deliver on other promises.
Which they do. Twilio's equity comp was fairly generous, at least for a time, and I believe all employees had equity as some percentage of their compensation. In addition, Twilio offered an ESPP that all employees could take advantage of.
(Full disclosure: former Twilio employee and current Twilio stockholder.)
I didn't know, and apparently yes, Twillio employees get RSU at entry as a standard perk. Now, those are still just RSU.
I couldn't get an exact number but if they are in line with most other companies, the stock raising while hypothetically the employee compensation goes down the drain would still a net negative for employees.
No, just no. Capital extraction, be it dividend payout or stock buybacks, benefit existing stockholders, by definition. Stock buybacks, however, as opposed to dividend payout, in a free-ish market increase stock price, which prevents those with less free capital from being stockholders in the first place, which, under capitalist system, are the workers.
Stock buybacks benefit those with previously free capital while at the same time hurting those without free capital currently. In a capitalist system this does hurt workers quite a bit.
Are you saying the price of an individual stock is what's pricing people out?
Having trouble reconciling that with the fact that only a few stocks are above $1000 (which doesn't seem to hard to reach if you want any substantial savings), and then stock splits and fractional shares happen often.
Or are you just saying that they will own a smaller percent of the total stock, so they have less say as stockholders?
If capital wants to take on the risks of being suddenly fired and losing access to healthcare, injured on the job, sued for non-compete, being forced to relocate to keep benefits, lack the freedom of vacations, sick leave, parental and bereavement leave, being forced to commute to and work in an office with other people during a deadly global pandemic, deal with stress and potentially harassment and discrimination, sometimes be forced to surrender their work life balance to handle completely predictable emergencies, be forced to work on days off because of shortages and scheduling screw ups, be forced to travel to keep their job, they can roll up their sleeves and Get A Job.
It's ridiculous to pretend this isn't a valid negotiation.
If you own a lawnmower (capital), and you want to hire someone to mow your yard (labor), it's clearly and obviously a negotiation for appropriate wages. Why would it be ANY different if you're paying them to mow your neighbor's yard, and you pocket the profit???
Oh I forgot, you went to the HOA and pulled a regulatory capture coup d'etat and convinced them that only Certified lawn companies should be able to charge to mow in the subdivision, and there's a prohibitive fee and delays and inspections, making it practically impossible for the guy to save up and buy his own lawn mower to compete with you and "take on the risks" of business ownership you worried about.
I know, as if the people who actually create the value should receive it!
Software development is a really interesting capital class, because the means of production are humans. So it’s not the same as owning a big loom machine and expecting a return on your capital investment, in software the loom is people, you don’t own them and they are directly linked to your value creation. This needs more thought than simple: worker vs owner dichotomy
> does not materially benefit labor in the long run.
If you ignore the wages (direct and indirect) paid, then sure. Otherwise, I'm not sure how you can argue that in good faith when the largest expense almost any corporation has is labour.
>> In the US at least, the fact of employment isn’t some gift to the laborer, which a lot of employers claim.
> If you ignore the wages (direct and indirect) paid, then sure. Otherwise, I'm not sure how you can argue that in good faith when the largest expense almost any corporation has is labour.
Unless you consider employment itself being a benefit to the laborer, your statement is only reflective of expense grouping in financial statements.
But...Twilio is a public company, VC shareholders have already sold their stock, so most of what you say isn't applicable, unless you mean to imply that a public company also acts similarly to a VC backed one.
The public market is the idealized landing spot for VC and in fact is usually the default and desired pathway for all institutionally funded companies
To the extent that startup boards choose or heavily push a specific category of CFOs in order to drive company structure that would lead to an IPO.
Go look at the employee history of a lot of startups and you’ll see they either changed CFOs or got one for the first time, after a massive B but certainly not long after a C round.
What's the difference? You still have to find a way to maximize profit at the cost of pretty much everything else. The only difference is that VCs are more willing to play the long game, whereas the stock market wants better results year over year.
I notice there's always this impulse to blame VCs for how startup businesses evolve but like, founders want to make money too, and plenty of founders dream of building a huge company with a massive exit or ipo etc etc and push for that as a company without vcs needing to force it
It’s funny to me that I’m reading this while listening to “Abolish Silicon Valley” by Wendy Liu.
I don’t think any CEO can be moral if your primary obligation is “shareholder value”. Or in plain language: making other people more rich at the cost of others.
I’m just happy the guy got out when the company didn’t align with his values anymore and he has the means to afford himself a conscience.
Attention and logistics. The cost of getting things where they need to go, the administration of an empire, frequently dwarves by orders of magnitude the cost of the materials being transported to and fro. The problem is not solved by localisation given the increased exposure to volatility that brings.
Caritative actions are part of capitalism. I donate voluntarily to charities, this is part of capitalism. Capitalism doesn’t prevent people from having a soul.
Capitalism is the framework that makes all those people work together: The nun, the family guy, the corporate shark, the idealist who can buy land and create an inefficient community based on non-monetary exchange.
Capitalism also makes us globally quite rich (by virtue of allowing us to simply take the revenue we generate in our startups), which affords us the luxury of giving 63% to the state. Supposedly in exchange for the state taking care of poor people. It’s the capitalism that allows me that money.
So I get it, you pin everything bad on capitalism. It’s just that you allow CEOs to pactise with the state to remove freedoms from you. Meanwhile you forget that this unprecedented lifestyle improvement since the industrial revolution, it’s also due to capitalism.
> Some have more money than they can spend in a lifetime while others are homeless.
> This is the society we live in, created by capitalism that demands unsustainable growth.
Who are you blaming? If you're so virtuous, why don't you give away half of your money to a homeless person?
Because to make a significant difference to that person's life you'd have to give them an astounding amount of money (and probably other forms of support), and personally speaking I'm still desperately saving just for a chance at having a place of my own myself. Nobody claimed to be 'virtuous', but caring is a good first step. I donate some of my time and a small amount per month to a local multicultural group. Small things help. Caring helps. Why is this suddenly about whether you're happy to give away half your savings to a person you don't know? Society as a whole could make things better by sharing wealth just a little more equitably. But some people seem to think that billionaires are just fine and not at all a symptom of a sick society.
Sorry but I get really frustrated by this lazy kind of 'well why don't you do it?' response. It just feels like you're trying to convince yourself that you're right not to care (to be clear, I have no idea whether you do or not), and implying that anyone who does, and hopes for something better, is just a hypocrite.
This "why don't you do it?" type of argument is probably the most common straw-man response to this topic.
The whole point, is to point out that some people have enough money to uplift hundreds of thousands out of poverty. Some have greater personal wealth than the GDP of an entire country, and that those people should either:
Give up some part of their wealth for the greater good.
Never be allowed to accumulate that much personal wealth in the first place.
The common person, like myself, doesn't have that kind of money. I cannot even afford a house for myself.
You have a fixed amount of already acquired property
You do specified labor on that
You exchange your labor + property for someone else’s labor + property
That’s commerce and has nothing to do with the question I’m talking about, which is: How you acquired the property in the first place is the ethical question.
What’s unethical is if your a neighbor was struggling to survive and instead of caring for him out of your property and labor, you convinced him to trade your excess money for a portion of his property in perpetuity.
So no, there is no more uncaptured “pie.” It should have never been caputured in the first place - it’s equally everyone’s right
Every “win-win” most certainly produces side effects, usually unmeasured, which leads to naive statements like “it’s not zero sum”.
We may no longer be peasants (hard to prove), but a large number of extinct species and ecological disasters would like to argue the “not zero sum” point.
If the world were zero sum, that means no new value has been created for humanity, ever. The world population has grown ~22x since 1400s. Are we now splitting our meager peasant loaves of bread 22 ways?
Nobody cares about your stupid degrowth ideology that advocates for death and people to be poorer. Just state what you actually are, which is anti-human.
> If the world were zero sum, that means no new value has been created for humanity, ever.
This statement is straight up false. Obviously you gain and lose value, and are interested in whether it's a net gain or loss. It's worth noting that a gain or a loss here is only anecdotal to our own human experience so far and without accounting for potential debts (externalities) still owed... like global warming, monoculture, antibiotic resistance, nukes, etc. You're attempting to make a rule in an extremely non-scientific manner, and making a ton of assumptions to boot.
> Nobody cares about your stupid degrowth ideology that advocates for death and people to be poorer. Just state what you actually are, which is anti-human.
I've never even heard of this Degrowth ideology... My ideology, if you can call it that, is simply taking responsibility for our actions instead of making up a bunch of buzzword horseshit. I'm not advocating for anything but the basic admission that it stinks when we fart. This "not zero sum" statement is as much a fantasy as religion is. I'm not asking you to stop farting or to save a whale. Just stop polluting our eyes and ears with corporate doublespeak.
What he said that "its hard to prove if we are still peasants" is wrong. But you cannot argue that we human have benefitted at the cost of nature? Also,
>Nobody cares about your stupid degrowth ideology that advocates for death and people to be poorer.
Is also not true. Having a 1km lawn is excess. Flying solo on a private plane to visit an office halfway across the world for 1-2 days every other week is excess. No sane person arguing for this position is claiming that people who can barely find food every day is living in excess and must suffer degrowth. It is the privileged that needs to degrowth and redistribute their excess wealth. Do you really think that the Earth can sustain had every single person on Earth lives like the ultra wealthy? Or even as the middle-class American with single unit home in the suburb? We would probably annihilate almost all of "interesting" flora/fauna and be left with chickens and cows if that at all. Maybe that's a perfectly reasonable trade? AFAIK humanity must take priority over every other being AFAIC.
> What he said that "its hard to prove if we are still peasants" is wrong.
I think this depends on how you classify peasant. If we can agree that it's about income inequality, and not quality of life, then there was a study done comparing income inequality in the late eighteenth century to current day, which concluded that "Incomes were much more equally distributed in
colonial America than in America today, or in other countries in the late eighteenth century". https://www.nber.org/papers/w18396
Ultimately it depends on the specifics and the dates we are comparing. I don't think people fully realize how significant income inequality really is today.
Why does income inequality matter? Why does it matter that some people are way, way richer than the other. This correlates with poorer quality of life, sure, but income inequality itself is not really that important. Calling the modern middle-class human a peasant is quite misguided imo. It is important to acknowledge that we have fared much better than our ancestors.
Is it a problem, say, if we all achieved nirvana but some achieved better nirvana? Must we rebel against them too?
It matters a lot since wealth translates to power and influence.
> Calling the modern middle-class human a peasant is quite misguided imo.
The modern middle class is shrinking fast. About 17%. Most people are either low income or poor.
> It is important to acknowledge that we have fared much better than our ancestors.
Look, we generally live much longer these days, so I think that's a decent measurement that we're far better off in aggregate compared to the middle ages. However life expectancy has actually been decreasing recently in many places, and we have some really big global problems to solve if we don't want that trend to continue. If that trend does continue though, then it becomes very hard to say we're better off than our ancestors.
> Is it a problem, say, if we all achieved nirvana but some achieved better nirvana? Must we rebel against them too?
Probably yes. Most people aren't zen. It's in our nature to measure our status among our peers, and probably responsible for most people's wealth and their drive to do better. Better is always relative. Before arguing the morality of this, you'll need to also defend the morality of billionaires (what's the point really?).
So... If you are complaining about destruction of habits for animals, and global warming, then yeah. If you are complaining about us extracting minerals... Rocks don't have feelings, they don't get a vote. If we could mine them without polluting and destroying ecosystems, not only we probably should, but we should start thinking on how to also mine asteroids and stuff.
> decimated humanity
How did we do that? There are more people now than in any previous point in history. There are a lot of people suffering, but quality of life by numbers is probably a lot better now than it has ever been.
> globally hopeless (look at birth rates)
So is population growth a good thing cause it shows people are happy, or a bad thing cause it means we won't have enough resources? I prefer us to have a stable population for the long run, at least until we can get to space.
> individual alienation has never been wider spread
How informed do you think illiterate peasants used to be?
What is happening, is that the American empire is in a state of decay right now. But the world is bigger than just the Western cultural world. Yeah, it might suck to not get getting all the fruits of imperialism that the US and European countries used to get. It makes the imperialist countries poorer not to have that. But for the formerly colonized people, their life gets better.
Without (yet) having an opinion here, that's not necessarily true: resource consumption is adding value to the system at a level that might offset population growth?
Who cares about population growth? We know human population will stabilize pretty soon. Malthusian arguments are meaningless when the very premise of unlimited population growth is false.
> I don’t think any CEO can be moral if your primary obligation is “shareholder value”.
I am really glad I am starting to see a lot more posts here on HN with regard to this fact. Capitalism is literally destroying everything and has proven itself not to be a viable system for long term sustainability and a healthy society and ecosystem.
Some of the smartest people on the internet aggregate on HN and some have still not figured this out. Either because 1) They haven't taken the time to look into the n-order knock on effects that are produced by capitalism in it's current form, or 2) they are too interested in self-enrichment to make any changes to behavior for their own comfort and convenience.
We should get of publicly traded corporations and Wall Street should disappear in my opinion. It is that publicly traded shareholder value that drives all the crimes against society/environment in this late stage. However, we are up against a severely selfish and entrenched minority with a ton of power who won't let that happen ... at the cost of everything.
How is it the driving force behind everything comfortable? If another system was in place are you saying that we would not have had progress towards human comfort? And it seems you are assuming that I wouldn't give up a comfortable life for a more fair and just system with less market externalities? If your measure for success is comfort, then you are the exact person I am trying to convince that we need something else.
Because capitalism is the only system which incentives continual innovation through market competition, removes non-competitive organisations which fail to meet consumer demand from the market, and empowers consumers to make choices which are in their self-determined best interest.
This is what largely I am arguing against. I think the benefits of capitalism have been proven, but the negatives are largely brushed aside. I think this form of capitalism is dangerous (and I should have been more explicit about that in my original comment). My original comment was to get rid of publicly traded companies and remove wall street altogether. Private companies can continue to exist and compete but the profit motive to solely deliver growth and profit to public shareholders has distorted the whole system into pro-forma income sheets at the best and to outright devastation and exploitation at the worst. Private companies would be largely in check because they wouldn't grow unchecked by raising capital they don't have by going public. In so doing, they wouldn't be "in debt" (overloaded non-technical sense of debt) to shareholders. This would lead to more sustainability and less growth over everything mindset. The knock on effects I mentioned would contribute to a more just and fair system.
That said, I am not an economist, but I would like to see this world exist for future generations. And this economic system isn't it.
> Because capitalism is the only system which incentives continual innovation through market competition
Why would a for profit company invest into basic research without a clear goal to monetizing that research while their competitor is spending that money on marketing?
Implication is that the claim: "Because capitalism is the only system which incentives continual innovation" has no basis in reality. By the lack of answer to the posed question I'm guessing you are starting to agree?
Of course I don't agree, your question is worthless.
"Why would a for profit company invest into basic research without a clear goal to monetizing that research while their competitor is spending that money on marketing?"
The only form of R&D spend that cannot be monetised is that which fails to better meet consumer demand, which is a purposeless waste of money.
As much as I disagree with the OP, this is just as naive. What we enjoy about our modern lives in Western societies is a productive mixed-market economy. The "pure capitalism" argument is just as naive as to pretend it's failed with no redeeming features (which itself, is fallacious because the critics propose no alternative they care to describe - but pointing out a problem with the current system doesn't mean anything if you can't raise a reasonable alternative).
There are plenty of critics proposing alternatives
I get a monthly magazine called Jacobin that is filled with bough criticisms and alternatives
Trying to find people who aren’t either fundamentally greedy or barely hanging on is nearly impossible so it’s just mostly people exploiting each other.
I am personally trying to build a cooperative that is mutually owned by employees, and it’s structurally really hard because the legal system doesn’t know anything about how to do that. The entire system is built on the assumption of profit maximization. You don’t go into a banking situation, without telling them the type of business, and the type of profit that you expect. so in every single aspect of attempting to do commerce in the United States, or worldwide today, the default functional system, which everybody uses, because there is no alternative system to use, makes it effectively impossible to do something else without totally building it yourself from scratch.
> You don’t go into a banking situation, without telling them the type of business, and the type of profit that you expect.
But that's because you're not just banking with someone, you're asking them for a loan. That money has a cost associated with it so the bank quite reasonably wants an indication you're able and likely to repay it.
Waste is waste under any economic model: if the input costs in whatever form they take exceed outputs the endeavor isn't viable.
Meanwhile, just last year people living a couple of blocks from me were removing sludge a metre high from the floors of their homes due to river flooding levels we've never seen before. Very comfortable indeed.
You’re blaming capitalism for flooding? If that’s the direction we are going, then I could find dozens of famines, dozens more environmental disasters that can be blamed squarely on socialism and communism.
Capitalism is definitely not the driving force behind most of the great art I enjoy in my modern life. Capitalism destroys art, and it's hard to imagine just how much great art we've missed out on because the artists had to stay busy with work so they can live.
If an artist has limited time (as all humans do), they can either work a regular job and have a guaranteed income, or they can create art and possibly starve, even if their art is great. You understand that, right?
You can't go up to people and say "hey, I have this incredible idea for an art project, please give me enough money for 5 years go work on this". A few artists can, but most a) won't convince other people that their specific idea is as good as it might be, and b) can't create enough publicity to actually get enough people's eyes on their ideas.
Your "it's not great if people don't want to pay for it" might work in a system where every human can talk to every artist and compare everything. But that is not our world. There will always be people who are undiscovered, there will always be people who could create great things, but don't have enough money.
But I don't think a capitalist can actually understand this.
You can't give credit all the credit to capitalism. Communism destroyed what was the fourth-largest lake in the world, which was so big that it was called a "sea"[0].
> Some of the smartest people on the internet aggregate on HN and some have still not figured this out. Either because 1) They haven't taken the time to look into the n-order knock on effects that are produced by capitalism in it's current form, or 2) they are too interested in self-enrichment to make any changes to behavior for their own comfort and convenience.
The age-old adage that anyone opposed to your viewpoint is either stupid or evil.
> You can't give credit all the credit to capitalism. Communism destroyed what was the fourth-largest lake in the world, which was so big that it was called a "sea"[0].
The age-old adage that if it is not capitalism, it must be communism.
> The age-old adage that anyone opposed to your viewpoint is either stupid or evil.
Which one are you? Sure my take was reductionist, but you are using my critique to distract is disingenuous. You are trying to defend capitalism by saying that you are not stupid or evil. If I have missed an adjective to describe people who have not discovered this ruthless system of destruction what would it be? Ignorant? Willfully Ignorant?
Somewhere else, maybe. To think one's opponents are evil or stupid only reveals a lack of self-awareness, arrogance, and over-confidence. Just as the spoon cannot taste the soup, someone displaying those qualities will learn nothing here, and no one will learn anything from them except a bad example, hence why I think HN is not for someone like that.
There already are such companies, but they aren't that visible, because they don't have VC money to burn in order to grow, so they have to do it organically, which usually means slower.
> stock buybacks, or other things that directly enrich investors at the cost of employees
As a former Twilio employee (and current stockholder), I have to disagree with this. Stock buybacks generally raise the stock price (or at least keep it from falling). Up until 2020 or so, Twilio was fairly generous with equity comp (at least for some of us; obviously I can't speak for all employees), so employees do indeed benefit from stock buybacks.
I suppose you could make the argument that, as a company spends cash to buy back stock, base salary raises get worse, since the company has less cash on hand to fund those raises. But I think you'd need evidence to back that up.
This is a typical cycle for a venture backed technology business. There’s just nothing else to say here other than this is 100% expected outcome if you decide to build a product on venture capital money, which requires an exit and an increasingly large exit to the point where you IPO.
Unless you avoid this structural pathway, you will be 100% guaranteed to do this.
I am unaware of a venture capital funded technology company that has maintained the core of what they do, and the value proposition, but didn’t push most of their money into paying for sales marketing executive compensation and eventually finally, stock buybacks, or other things that directly enrich investors at the cost of employees.
Having had a couple points with Jeff Lawson I believe he’s a good person who wants to do the right thing for the most amount of people and do it ethically, which is why he jumped into this thread. However, he faces the same pressures as everybody else, and so it’s honorable that he is attempting to find ways to mitigate the downside harms of this new direction but at the end of the day the arrow of history is clear.