[omarhaneef]

At the heart of this article is the claim that buying equity is a form of theft.

That is an extreme claim (in the sense of surprising, remarkable, unusual, and one that needs a lot more support than ordinary claims).

It is inadequately defended here. The argument that it violates fair exchange is tautological.

[sumuyuda]

I think the main argument that it is theft, is that they contribute nothing to the continued surplus generated after their loan was repaid. So they effectively steal the profits like a parasite.

Why should they get ownership of the business? When you get a mortgage for your house, the bank doesn’t permanently own part of your house after you pay it off.

[labcomputer]

> Why should they get ownership of the business? When you get a mortgage for your house, the bank doesn’t permanently own part of your house after you pay it off.

Because the VCs are funding the startup on extremely favorable terms?

If the startup fails, the founders can just walk away. They are not personally liable for anything. They can (and often do) subsequently form another startup, often funded by the very same VCs who funded the one that just failed!

If, OTOH, you fail to pay your mortgage, the bank takes your house. And they make hard for you to get another mortgage from any bank by reporting the foreclosure to credit ratings agencies.

You absolutely can keep the equity (and surplus) for yourself… but you will need to personally guarantee the loan. You may need to declare bankruptcy if the startup fails, and all that entails.

VCs are happy to throw away money on 99 failed startups precisely because they are entitled to the continued surplus from 1 successful startup. Banks are happy to make failure to pay extremely unpleasant for you because they are not entitled to any surplus from business loans which lead to successful outcomes.

[yogurt-male]

> VCs are happy to throw away money on 99 failed startups precisely because they are entitled to the continued surplus from 1 successful startup.

And why is this a good thing? I think the past decade and the current bubble point to this being a bug, not a feature. What I mean to say is that VCs seem far too eager to throw money at ventures with untenable business plans or that lack any edge over competing firms, which is a waste.

[labcomputer]

> And why is this a good thing?

Ok, well, I personally really like driving a car with zero tailpipe emissions, and the cleaner air that comes from it (Tesla).

I think it’s awesome having a little rectangle in my pocket that sends text messages from anywhere on earth and summons an encyclopedia (Apple, Google, Starlink, Intel).

I enjoy talking to (and seeing) my friends and family while they are thousands of miles away (Cisco, Apple, and many others).

I think it is fantastic that we continue to find new labor-saving methods of farming so that fewer people need toil in the fields (the current batch of ag-drone and ag-AI startups).

This is like asking “well, why do we need that science mumbo jumbo anyhow?”

[zanellato19]

Claiming that all of these would not exist without VC is hard to believe.

[fluoridation]

What do you mean "a bug"? A bug in what? If to someone it makes sense to pour money into an apparently non-viable business on the off chance that it succeeds, what exactly is it that you're saying is not functioning properly? The person's mind? So what do you want to do about it?

[immibis]

You're only reacting to a part of the system. You're starting from the axiom that businesses need a level of risky funding that only VCs will provide, and then congratulating VCs for swooping in and saving the day. But would it be possible to have a system where startups to require less funding? For example, by UBI, or normalizing bootstrapping?

[fluoridation]

Sorry, but your reply is so utterly disconnected from my question that I'm just going to assume you replied to me by mistake and ignore it. If it wasn't a mistake then you've completely missed the point.

[immibis]

What if we created a system where startups didn't require as much funding? Is the system set up in such a funding-intensive way in order to benefit VCs, who can swoop in and save the day? If so, rich people don't get any credit for solving a problem rich people created.

[Anon1096]

For one, in a mortgage the loan is secured by the house. But more importantly: you can get simple loans for startups too! Banks provide loans that are personally guaranteed (ie if the business goes under the founder is still on the hook). But if you want more money or something that is limited in liability then your pool of people willing to give money is much smaller and they usually want a stake in the business as a condition.

[ffsm8]

The opposite argument would be that the default should behave like the house then, so ownership should switch over to the person providing the loan entirely - instead of passing on part ownership forever.

But that's obviously less desirable to the person providing the money, and they've obviously got all the cards... Hence the argument of this post.

I wouldn't call it evil myself, unless I wanted to classify capitalism as evil in it's entirety - which would feel disingenuous to me, considering the alternatives were always worse in hindsight.

[labcomputer]

You aren’t thinking this through. If a startup defaults, it is because they have no money left (which is because they do not have a viable business yet). So there is nothing of value to repossess.

This is the same reason the bank asks for an independent valuation of a house (and requires the buyer to maintain insurance) before releasing the money to pay for it: The value of the collateral needs to plausibly match the value of the loan, so that the value of the loan can be recovered in case of default.

The only way this works is for the founder to personally guarantee the loan. Which means the founder needs to have sufficient personal assets to keep the bank happy. It also means the founder risks personal bankruptcy if those assets are not enough to cover the loan if the startup defaults.

[ffsm8]

Naw, you're making a claim that's just not true.

The company will have some value left on default. E.g if it's a software company it will have the IP for the software etc pp

Now wherever that's enough for anyone to be willing to take that risk with the loan is another story and thus I could now quote my previous comment in its entirety

[labcomputer]

Meanwhile, back here in reality…

Failed startups don’t have value left at the end. They go until they run out of money. Then they liquidate the office furniture to make the last payroll. Sometimes they don’t wrap up early enough and the founder and board members are personally liable for it.

Nobody wants to buy the custom software needed to run “The pets.com for GenAI” because it would be cheaper to start from scratch than to understand the codebase and make it do what you want.

Companies like 23-and-me that accumulate valuable data while going bankrupt are the rare exception… but banks/VCs do not know a-priori which ones will be that exception! If they did, they just wouldn’t make the bad loans in the first place!

> Now wherever that's enough for anyone to be willing to take that risk

Well, but it clearly isn’t, right? So everything else you wrote is sort of irrelevant.

I mean, why don’t you lend a startup $1000 on the condition they pay you back $1500 in two years[1] if they succeed and nothing if they fail? Pass the hat around your neighborhood and I bet you could fund a few real startups!

Except that.. oh.. when it’s your money on the line, suddenly you realize those are very stupid terms. You lose the whole $1000 90% of the time, break even 5% of the time and make a +$500 profit 5% of the time. The math isn’t mathing here.

So you’ll want to very carefully vet the founders and their plan. Be very picky about who you fund. Maybe you’ll ask them to personally guarantee some fraction of the loan. Suddenly, your highly moral terms look exactly like the business loans that approximately 0% of startups use because VCs offer them a better deal.

[1] Any more than that would be usury, which is immoral, right?

[HumanOstrich]

The residual value in the failed startup will be such a small fraction of the funding. You aren't making a convincing argument.

[godelski]

I think the main problem is that investors are investing in the wrong thing. They invest because they believe they can make a return, not because they think a valuable product will be made.

There's a subtle difference and it shows by how we even see wealth. We associate wealth with utility to society. That is, after all, why we create economies. We want to reward those who make society better.

But that's where there's been a disconnect. We figured out we could make money without pushing society forward. We'd historically refer to those people by different names... worse than that, we are focused on the short term. Silicon Valley has perfected the hype cycle. You get in cheap, pump up the price, sell, and do it all over again. It does not matter if it is vaporware, it matters that you can make a profit.

The problem is alignment. The economy is not aligned with its intentions.

Do we see much innovation these days? Is there even an incentive? No doubt there's innovation, but people are claiming it is accelerating. I'm unconvinced we're innovating faster than we did in the 90's. That decade changed society more than the 00's and 10's, even with the advent of the smartphone.

Unlike the author, I'm actually in favor of capitalism, yet I firmly believe that an economy still needs to by well regulated. There's very few economists who believe such regulation does not need to exist (we listen to partisans more than actual economists), and I've found even the most staunch free-market believers (often not actual economists) will have concessions. It's no secret that an unregulated market is not a free market. An unregulated market is a market regulated by the largest entities of the market.

It is probably no surprise that those who cannot think long term are unable to realize that the rise in popularity of socialism is due to the abuse of capitalism. Most people do not have a strong foundation in economics (why should they! They're spending years learning other skills than years reading textbooks, analyzing, and going to school). But people do know our system isn't working. Is it really more cost effective to build bunkers and buy private islands than it is to make the lives of the people better? I doubt it. But that's the same myopia I've discussed in my entire comment. The problem is how myopic we've become

[haritha-j]

For me, when you start to lobby, when you explicitly pay people to pass laws in your favour, that's when you cross a line. You go from playing within the rules of the system to making up rules that favour you, and it's wild that it's legal much less acceptable for corporations to do that.

[cjbgkagh]

While I agree it is unfair and it would be better if they didn’t, the reality is that there is a meta-game at a higher level and they are playing according to the meta-game rules. Part of the meta-game is to convince others to stay in the regular game sandbox which gives rise to the hypocrisy we are all familiar with. I don’t know what it would take to diminish the meta-gaming let alone eliminate it, it’s very hard to stop things that are very profitable. I also think we’re in the looting phase of corporatocracy. I think the result of this means the meta-gaming rapidly grows like a cancer to take over everything.

[judahmeek]

The Atlantic just wrote an article that references this concept: https://www.theatlantic.com/ideas/2025/11/marjorie-taylor-gr...

They also have several older articles directly targeting insider trading by politicians.

[HumanOstrich]

Insider trading by politicians is not really what's being discussed. Rich people and corporations lobbying politicians is different.

[judahmeek]

I was talking more about the mentality of the politicians who "get the joke"

[judahmeek]

So who do you think should be allowed to lobby politicians & how would you avoid lobbying from bleeding through unofficial channels?

[haritha-j]

Personally, I think we need much tighter regulation. There was a study at some point that found that lobyying has a yield of 22,000% in the US, which is a wild figure (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1375082). Lobbying very seriously undermines democracy. The US system of calling lobbying via donations as free speech seems ludicrous. France, for instance, has much tighter laws on lobbying.

[cmrdporcupine]

The article is clearly written from a bit of a Marxian perspective and I think there's a lot assumed ... presuppositions about exploitation and value theory.

So yeah, even though on first skim I think I agree with the thrust of this article, I think you're right it's poorly defended, assuming it's at all for an audience outside of people who already think this way.

[api]

Marxism is back in vogue again. I guess people have tried reviving Naziism/fascism so now they’ve got to try reviving the other failed early 20th century totalistic political ideology.

I get that the status quo has huge issues, but can we have some new ideas maybe instead of continuing to try to revive late 19th century ones that have repeatedly and disastrously failed?

[rixed]

Certainly, to get new ideas it's better to start from a good knowledge of past ideas? If we had thrown an anathema on physics each time a rocket blowed up, nobody would have ever landed on the moon :)

[cmrdporcupine]

As a person with Marxian leanings I can tell you it's not "back in vogue" in fact in both academia and general populace actual Marxist theory has probably never been less vibrant or popular?

Maybe some people get that impression because they've conflated "Marxism" with general socialist urges or even cultural "left" wing identity politics, but that in fact is proof exactly of the opposite. It's never been more heretical to advocate for wealth redistribution or dismantling or restricting parts of the capitalist market, even in the context of a total ecological crisis brought on by industrial production and exponential growth.

It's not even on the table of discussion in any western country, so I am not sure where you fear comes from. That a claim like this could be made shows me exactly how far to the right we've drifted since e.g. the 60s. That someone like Mamdani could be smeared or red-baited as a "Marxist" for advocating for rent control is hilarious really.

(But frankly I'm not here to debate the merits or get into a drive-by debate with your half-formed opinions, nor was that the aim or thrust of what my comment above was about.)

[immibis]

> the other failed early 20th century totalistic political ideology.

I'm not sure how to square this statement with reality. Which countries were Marxist? The obvious "communist"/"socialist" country was the USSR, but it was Leninist/Stalinist.

[queenkjuul]

Ask the Chinese how poorly Marxism is treating them

[rixed]

I haven't read Marx since I left college, but in my remembering the only thing that is "theft" in the capital is the initial accumulation. There is no idea that any form of ownership beside that is theft (I don't believe there is any notion of "evil" either.) To be honest, you don't give the impression that you have read anything from the author that you are siting. Marx is like those ancient greek phylosophers and classical scientists who are "quoted" more often than read.

One could probably say that the privatisation of human communication is a form of "initial accumulation", or maybe just another step toward appropriation of culture, but that's apparently not the angle that the author decided to explore (can't be sure, I couldn't do better than skim that text which looked wrong in too many ways).

[cmrdporcupine]

"you don't give the impression that you have read anything from the author that you are siting"

Oh, ok. Anyways.

First section of Capital Vol I is all about "surplus value" and exploitation, with a heavy dose of the labour theory of value. It has nothing to do with "initial accumulation" at all, it's about ongoing extraction of surplus value in production, and no, Marx doesn't call it "theft" -- he calls it "exploitation" (which to him is actually somewhat of a value neutral world describing a technical process, actually).

Whether it's a defensible position in economics or philosophy is a whole other discussion. There's nuance.

Also I assuming you mean "citing", not "siting"

[rixed]

As the other person who responded to me wrote, I might have misunderstood your comment. I believed that you associated the idea that "property is theft" with Marx, and that's this association that I wanted to warn against.

But that's indeed not what you were saying.

[Retric]

I think you misunderstood his viewpoint.

Marx’s writing predates the US civil war. When you “own” someone and then “own” their labor the fruits of that labor aren’t yours any more than the person. By that reasoning, if you then use the fruits of that labor to buy a house it’s a stolen house.

[kmeisthax]

Imagine for a second that any time you borrowed money to buy something, like a home or a car, you paid that back not by actually paying the loan plus interest, but by a % garnishment of your lifetime wages. That is what equity capital is like.

Obviously, nobody would take that kind of deal. But what if regular loans were just flat out not made available to you? Like, if tomorrow, banks as a class individually decided they would only accept payment in this sort of lifetime wage equity. Then it's not really a choice anymore. One of the options has been taken away from you. If I take a fair deal and have one of the counterparties flat out remove some of the negotiating options - even if they were not the ones taken - is it still a fair deal?

In other words, the argument that fair exchange has been violated is based on the idea that market power can be a form of coercion. If you don't agree, then you can argue that every possible counterparty deciding to only offer you a bad deal is perfectly acceptable and non-coercive. "Natural shorts[0] are not coercion", in other words. But why stop there? I mean, even in outright theft, where I'm holding a literal gun to your head and demanding payment, you could still choose to eat lead. We can redefine theft and coercion down to excuse any behavior we want on libertarian terms. The tautology is not with the argument, it's with fair exchange itself.

[0] As in, "thing you need to exist". You have a natural short position in food, drink, and shelter.

[luckylion]

> Imagine for a second that any time you borrowed money to buy something, like a home or a car, you paid that back not by actually paying the loan plus interest, but by a % garnishment of your lifetime wages. That is what equity capital is like.

Weird analogy. It's more like "what if you borrowed money to buy something, didn't have to return it, but if you made money with that thing, you give the lender a cut, forever".

Because the point is: it's not a loan, you don't have to pay it back, and you're not on the hook for it if things go wrong. That's the big upside and why lots of people do that instead of getting a loan. Because loans are available, but people don't want that risk and are willing to give up some of their ownership to avoid it.