The problem being, how many of these businesses would have won any market share without early VC investment enabling the companies to dump money into customer acquisition at a loss?
Probably a few of them, but I'm guessing some other company with a similar business model would have come along with VC backing and eaten their lunch (sure, that company might then be in the exact same place as the current over-valued late stage companies).
> The problem being, how many of these businesses would have won any market share without early VC investment enabling the companies to dump money into customer acquisition at a loss?
The problem isn't with early VC money. Dropbox's early backers would have still made a gigantic return on Dropbox setting at a $1bn valuation.
Really, it's not even a problem with their series B ($250M at $4bn). $4bn is a reasonable eventual valuation for Dropbox.
The problem is that they didn't stop there. They raised another $850M in 2014 (in two rounds), which was basically sold on the promise of it being necessary to "win" the storage wars and acquire a monopoly.
By 2014, Dropbox was already a stable company with hundreds of millions in revenue. The only reason to raise money was to shoot for hitting Google/Facebook status (owning a lucrative monopoly). If they had instead accepted that their eventual outcome was a $3-5bn software company, everyone could have won: employees, investors, founders, etc. (Atlassian is an example of a company which did eventually raise substantial VC, but instead of gunning for a monopoly IPOed at a $4bn valuation.)
The problem is that founders ultimately have huge egos and want to be the next Mark Zuckerberg or Larry Page: commanding monopolies so lucrative that they can spend billions on zero-return "cool nerd shit."
There has been a major shift as of late where IPOing at those mid-late rounds just isn't the trend anymore. Public markets are a cruel beast where companies are living and dying by quarterly reporting so these skyrocketing growth startups have less incentive to let the public judge them. They also don't want to leave too much growth opportunity on the table when going public anymore.
So it makes sense why companies would want to stay private if someone is willing to give them the cash they think they need. Problem is, those investors also want to make a huge return, so a 20B valuation is going to come with some nasty liquidation preferences/ratchets etc. to protect the money.
That's a great question, and one I won't pretend to have the answer to. On one hand, Basecamp has carved out a very profitable niche for themselves despite venture-backed competition from Jira and others, so it's certainly possible. I also think that there is a big difference between taking money when you are small with typical angel / seed-round terms and taking late-stage money with 2x VC liquidation preferences and a private valuation north of $1 billion. Then again, like you said, it can be very tough to turn a profit when you have to compete with companies undercutting you by subsidizing their prices with an enormous reserve of easy VC cash.
Which of course is precisely why we should have an economy which allows ordinary people the financial freedom to create these companies on their own, rather than vesting that power in only a few.
Not quite sure what this quote is implying? That the government should take over VC, or that by solving income inequality, customer acquisition would be cheaper.
With regards to the second point, as long as as potential outcome of the VC method can bring about some EV of $1B, then there will be someone willing to spend $999M to capture that market.
Probably a few of them, but I'm guessing some other company with a similar business model would have come along with VC backing and eaten their lunch (sure, that company might then be in the exact same place as the current over-valued late stage companies).
Damned if you do, damned if you don't?