Yet Amazon.com continues to attract investors and builds its monetary base on potential rather than actual financial achievement:[v]
“For now, Amazon can afford to make mistakes. It has $1 billion in cash from its bond offering. So, even if the stock market were to turn on it, Amazon would have enough in its war chest to keep its plan on track. . . . .More and more [however] the question comes up: When will all this pay off? Bezos [Amazon’s CEO] insists that the company can make money anytime it wants: “We were profitable in 1995, six months after we started,” he says (This was before Amazon’s IOP, so there is no public record of his claim.) But, he continues, “that was the biggest mistake we ever made.” He believes that concentrating on profitability now would mean missing out on “the big opportunities of the Internet.” Although Bezos won’t comment directly on Amazon’s earnings’ timetable, it will probably be years before it earns a dime. “Look at USA Today; it took 11 years to become profitable,” he argues.”
The interplay in venture capitalism between money and information has become even more complicated in recent years as the venture capitalists begin to make their money more from the initial stock offerings than from the actual revenues that are hopefully generated by the start-up company. On the one hand, we find that small-time investors are increasingly willing to place money in startup companies (especially those affiliated with e-commerce)—thus taking on the role of venture capitalist: “Knowing or not, individual investors have become venture capitalists.” [vi]Thus, the men and women who are formally in the venture capital business may no longer be in the business of finding private investors or of putting up the money themselves for a new company. They are instead accelerating the move toward a public offering of stock and are finding the funds (and their own profit) through these stock offerings:[vii]
“In practice [the venture capitalists are] now taking startups public long before anyone can say whether those companies have a workable approach. By making such an early (and often insanely lucrative) exit, the VCs shift most of the risk onto the public market. And that risk is considerable. “The potential losses are gigantic,” notes Costello [ex-CEO of software giant Cadence Design Systems and now head of Think3, a startup that makes 3-D design software]. “It’s not right. The venture guys should be thinking about building long-term, self-sustaining companies, but they’re off to the races on something new. This is [just a] pyramid game here, a pump-and-dump Ponzi scheme. . . . It’s become a completely internal loop, with the public market paying the bill.’”
It is all very disturbing in terms of both financial viability and ethics:[viii]
“. . . entrepreneurs have begun to regard the capital market not as a disciplining force but as the customer. Companies are created, hyped, and sold with less concern for attracting real customers than for lining one’s pockets with investors’ money. The result is that participants can wear a set of ethical blinders, behaving in ways that might seem perfectly acceptable within this insular context but that, when viewed with a modicum of objectivity, look borderline at best. One can already imagine the post-mortem articles that will follow any Internet crash. Silicon Valley.con, they’ll call it.”
