[HN Gopher] Capital Inefficiency
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Capital Inefficiency
Author : cdme
Score : 28 points
Date : 2023-10-05 23:10 UTC (2 days ago)
(HTM) web link (cutlefish.substack.com)
(TXT) w3m dump (cutlefish.substack.com)
| debarshri wrote:
| It is interesting because right before the macro conditions went
| haywire, when we were raising capital for our current startup, we
| often got responses like, Oh, well, you guys are not from SF, or
| you should build your team in SF; all the action is here.
|
| It is true that action is still in SF. But suddenly, the VC
| ecosystem has started appreciating capital efficiency as we are
| building quite a large team in India. It has its own issues, but
| overall, you can be really competitive with a Bay Area startup. A
| 2 million-dollar venture may take two years for a Bay Area
| startup, whereas if you have a team in India or elsewhere, it
| goes way further. People talked about moat, hype etc. before the
| downturn now everything is talking about capital efficiency
| (which I think is good)
| bugglebeetle wrote:
| The current market conditions in the US seem more like a Capital
| strike than "Capital inefficiency":
|
| https://en.m.wikipedia.org/wiki/Capital_strike
|
| The pandemic created both labor shortages (and thus higher wages)
| and improved conditions for many workers. Capital owners are now
| doing everything in their power to claw back those gains, though
| not without newly-emboldened resistance from organized labor.
| pc86 wrote:
| This seems like an overly simplistic "capital owners
| greedy/labor-good-capital-bad" kind of take. I don't know if
| you've applied for any tech jobs recently but at least outside
| of super-senior and FAANG positions that I'm familiar with,
| it's pretty brutal. When I applied for my current role I was
| basically going against 3-4 other people and we all matched
| about 80% of the qualifications for the role. My boss is hiring
| right now and within a day received over 100 applications, and
| as of last week he has at least dozen who fit 100% of the
| qualifications for a comparable role to mine.
| bugglebeetle wrote:
| That's not really in conflict with anything I wrote? Firms
| are colluding on layoffs to force these kinds of conditions
| and drive down wages.
| Plasmoid wrote:
| What do you mean by collusion? Do you mean an explicit
| agreement like the old FAANG no poaching agreement? Or
| something more subtle?
| bugglebeetle wrote:
| Return to office is largely layoffs in disguise, all of
| FAANG is doing it, and have more or less explicitly
| stated that they have no rationale beyond "we can make
| you do this, so we are." As you pointed out, they already
| conspired in the past with their no poaching agreements,
| so draw your own conclusions.
| IX-103 wrote:
| Yep. Not too mention the actual layoffs that are going
| on. If you actually look at the hiring for the companies
| with these layoffs then you find that they are actually
| growing their workforce while still announcing layoffs.
| That seems almost designed to depress wages...
| readthenotes1 wrote:
| You left off that the response to the pandemic in the US
| revived a marker for capital that hadn't existed for 15 years,
| and made all other risk taking much more expensive
| bugglebeetle wrote:
| High interest rates are certainly erasing some forms of
| irrational allocation that can't be sustained under them
| (e.g. all the crypto stuff), but the collusion between firms
| on things like return to office, wage suppression, and price
| gouging is largely independent of them.
| yibg wrote:
| You keep talking about collusion. Do you have any
| supporting data to back this up?
| soupfordummies wrote:
| What if it's not a decision made in a smoky back room
| behind closed doors but rather monkey-see-monkey-do/"hey
| we can get away with it"?
|
| Definitely is weird to say the least. Even small
| companies often have HUGE investment firms behind them of
| course.
| thrway63245 wrote:
| This is exactly what you would have said the last time
| there was proven collusion. It takes a while for the
| proof to come out, but as the sibling comment says: it's
| awfully convenient that all the RTO policies and layoff
| ratios are in alignment.
| bugglebeetle wrote:
| Every FAANG simultaneously decided they needed to layoff
| roughly the same percentage of workers, and even more
| through return to office, with no justification or
| demonstrated impact on profits, productivity etc, they
| share large investors, and oh, yes, they all got busted
| for colluding in the past? It's all pretty much out there
| in the open.
| IX-103 wrote:
| [delayed]
| alexashka wrote:
| Collusion is the default human condition. It is absence
| of collusion that has to be proven.
|
| Or are we assuming governments around the world are
| effectively preventing collusion of multi-national
| corporations? Now _that_ would require incredible proof.
| nyssos wrote:
| Those things don't constitute a capital strike. Businesses
| don't suppress wages to strongarm the government, they
| suppress wages because they want higher profits. Likewise
| with prices.
|
| Return to office might be more organizational pathology
| than rational self-interest, but it's still not an attempt
| to influence policy.
| sharts wrote:
| > Businesses don't suppress wages to strongarm the
| government,
|
| They do threaten to relocate operations overseas. And
| when they do, the wages paid may indeed be "higher" than
| average in the new regions.
| anon1199022 wrote:
| That crypto part is an assumption. If you want real
| irrational allocation, check back to office and how and of
| capital overlords are pushing it for no rational reason.
| willcipriano wrote:
| Margins are up across the board from 2021 onward:
| https://fortune.com/2022/03/31/us-companies-record-profits-2...
|
| There is room for workers wages to go up but right now the
| higher prices are mostly benefiting investors and owners.
| cperciva wrote:
| Margins _need_ to be up in order to pay for the increased
| cost of capital.
| willcipriano wrote:
| If they were paying lots for capital, they'd have lower
| margins.
| hotnfresh wrote:
| You don't pay costs out of margin. That's what's left after
| costs.
| marcosdumay wrote:
| Own capital costs are exactly the thing that margins pay
| for.
| steveBK123 wrote:
| Not quite right.
|
| I'd argue the reason you want higher margins in a higher
| interest rate environment is the "risk free rate" is now
| higher.
|
| If the risk free rate is basically 0%, you'll invest in a
| risky business that makes 5% margin. If the risk free rate
| is 5%, now you want the risky business investment to have
| 10% margin to be worth the same investment.
| roenxi wrote:
| Adding in that the economy was partially parked up through
| COVID and the risks of being shut down by the government
| turn out to be much higher than people realised hitherto.
| Margins need to go up in that sort of environment to push
| everything back to how things were pre-pandemic, otherwise
| nobody will bother. Not many are crazy enough to put lots
| of money into low-margin businesses that are at high risk
| of being shut down. Capitalists are greedy but not stupid.
| ramesh31 wrote:
| >Developers: "Am I a good developer? Are there 10x developers?
| Were those high-profile things I worked on now on the cutting
| room floor worth it? What does it mean to be an effective
| developer these days?"
|
| This hits hard. Along with the "please don't fire me" line at the
| end.
|
| After spending so many years watching so many people do such
| great work together which amounted to nothing, I'm left wondering
| where to go at this point.
| RivieraKid wrote:
| Regarding worsening conditions for tech workers - my theory is
| that this is because tech is particularly sensitive to interest
| rates. Software developers are often building products that will
| start making money in the distant future. With interest rates
| going up, the present value of these future cash flows goes down.
| sharts wrote:
| Hopefully this will result in a more conservative approach to
| tech with a greater focus on immediate needs vs long-shots in
| the distant future which tends to result in winner-take-all for
| the victors.
| yowlingcat wrote:
| Very nice way to explain a concept that usually takes me
| several paragraphs.
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