[marcusverus]

The poster isn't saying that companies should never buy growth by selling $2 for $1. He's saying that VC seems to be bad at avoiding companies that only grow because of this. Consider PayPal. Early on, they would pay a $20 referral fee to anyone if they could get a friend to join and use PayPal. That's insane at first glance, but it worked because those new users kept on using the product; because the product itself was viable without the subsidy. Coca-Cola is the same way. They advertise, but they turn a profit after baking that into the price of the product. MoviePass was never going to work. The subsidy was the product. That's the concern.

[tolmasky]

Are they bad at avoiding that though? Or are we greatly extrapolating from one VC in one high profile case: because that is the actual hilarious part of WeWork, it was basically entirely funded by just one VC that kept doing more rounds.

Additionally, the nature of VC is that it is high risk: you're supposed to have 9 failures for every success. So just from an "amount" of companies perspective, they're always going to seem "bad" at this I guess. That's why I used Facebook as an example. It's unfortunate that it takes very little time for everyone to forget, but the valuation of Facebook seemed ridiculous at the time. That's the nature of the beast: it's really hard to tell the winners from the losers, and thus VC is a necessarily risky enterprise. PG talks about this here: http://www.paulgraham.com/swan.html

That's why my point is that the true problem is if the capital comes from the wrong place, namely non-traditional sources of capital funding these funds due to loss of any other viable more conservative investments.

[jonas21]

And even WeWork isn't that bad. Each new location they open has large startup costs: they have to lease a large space, build it out, hire staff, do a lot of marketing -- only then can they start collecting rent from members, and it takes time to fill the space to capacity.

There's no reason to believe that they wouldn't be profitable if they stopped growing so quickly (they opened 200 locations in 2018 alone).

[TheOtherHobbes]

WeWork was profitable - for Adam Neumann.

Using WeWork funding to buy property that he could then lease to WeWork was brilliant. So was selling the branding and IP back to the company. So was borrowing money against his share ahead of the IPO - although it's not obvious how that's going to work out long term.

Was WeWork ever a serious business? Was there ever a plausible path to consistent profitability? Or was it just a cover story?