[what-the-grump]

Please point to the active money in this economy?

The pension reallocations? Blackrock? Bitcoin?

There is a ton of money being siphoned off with zero place to put it. When sv collapsed why does Roku park half a billion dollars in a bank account. Roku has 8th of Mazda’s net worth parked in a bank account… there is unchecked capitalization for the sake of the share price, this money is doing nothing except buying up competition.

[ttul]

The Roku example perfectly illustrates the deeper issue here - we're seeing a systemic breakdown in capital allocation that goes beyond the passive/active debate.

The real problem is a feedback loop: large companies get cheaper capital → they can afford to hoard cash and make defensive acquisitions → this reduces competition and innovation → which paradoxically makes them even "safer" investments → reinforcing their cost-of-capital advantage.

Meanwhile, the "missing middle" gets squeezed from both ends. Small companies can access some capital through VC/growth equity, but medium enterprises ($10M-$1B revenue) face a brutal gap. They're too big for most VCs, too small for institutional debt markets, and banks are increasingly consolidated and risk-averse.

(I am so personally familiar with the missing middle in my day job)

This isn't just about market efficiency - it's about market structure. When a streaming company parks $500M in bank accounts instead of investing in content or technology, that's not rational capital allocation. It's defensive positioning enabled by cheap capital and regulatory capture. There are many many lazy companies sitting on a cash machine structure with no decent ideas on how to grow.

Some potential fixes: - Tax policy that penalizes excessive cash hoarding; eliminating the tax deduction on interest would encourage companies to hold less cash by making cash more expansive

- Regulatory limits on horizontal acquisitions above certain market share thresholds

- Public development banks focused on the missing middle (like Germany's KfW)

- Capital gains tax advantages for investments held in companies under certain size thresholds

The irony is that this concentration might ultimately hurt passive investors too - less competition means less innovation and slower long-term growth across the entire economy.

[com2kid]

Counterpoint -

Nearly every startup I've talked to recently (last year or so) has been cash flow positive after just series A (or sometimes after just a seed round!)

Companies are pursuing smart business strategies and prioritizing healthy rates of growth over "hire everyone we can and figure out how to make a profit later". I'm seeing a lot of very focused businesses that are meeting customers demand right away and solving real problems. They aren't billion dollar problems, but they are profitable problems to solve. I wonder how the startup ecosystem will change if VCs start seeing 60% of companies making a healthy profit after a couple years, vs the historical trend of waiting a decade and hoping 1 company strikes it big. 60% of companies growing 10-20x ROI seems ... Not bad?

One problem of large mega corps is they don't even bother to go after new ideas that aren't multi-billion dollars markets. It used to be Microsoft would make a bunch of senior engineers filthy rich, they'd go boot strap a new company, and if the idea took off, Microsoft would aquire them again. Some people in the 90s/early 2000s pulled that off multiple times!

[Mutjake]

If some business is defensively buying off all the competition, that’s an easy ATM for a serial entrepreneur, especially if the large business is price gouging: found a competitor, grow it e.g. with some like-minded funding, sell it at a premium. Wait for the clauses of the contract to run out, and rinse and repeat.

The defensive acquisitions can work on domains with gravity effects to a degree, but those are domains are far from being the total market.

[bigbadfeline]

> found a competitor, grow it e.g. with some like-minded funding, sell it at a premium. Wait for the clauses of the contract to run out, and rinse and repeat.

Unrealistic, that strategy has no history of success. MariaDB tried... still wimpy.

> The defensive acquisitions can work on domains with gravity effects to a degree, but those are domains are far from being the total market.

Not so. Market size and inertia, connections, red tape and political weight are always present, fundamental forces of "gravity". They are the total market, at least the part of it that matters.

More importantly, even if your strategy of "feeding the machine for personal gain" did work, it amounts only to feeding the machine without changing its nature or direction. That strategy can benefit few individuals but it can't fix any of the issues discussed here.