Told 11 yo about the existence of finance. I'd willingly answered all his questions about drugs and organized crime and sexual practices, but I found myself reluctant to tell him there were people who made money just from betting whether prices of things would go up or down.
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Why is VC funding any different?
Because early-stage startup investors affect prices rather than just predicting them.
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That occurs in all market based investing.
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Add activism
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I guess what it's coming down to is what you use the money for - running a company or running a bet.
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Anyway, this is part of 'the capitalism game' that you don't want to talk about to an 11 yo. And this is very significant
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Whenever you trade (in size) you affect prices
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Finance raises and allocates capital towards the highest and best uses. What do you propose as a better instrument for doing this than markets?
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If this is true, what are the mechanisms involved in ensuring that the use of capital is optimal? Where do needs that the market cannot realistically fulfill, but needs nonetheless, fit in? Needs like affordable housing, renewable energy, the eliminations of CO2 emissions, etc.
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people betting on prices affect prices in addition to predicting them. A transaction is always a signal
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The betting people also affect prices - they make them predictable for upstream suppliers.
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Would VCs even exist without the speculators in finance allowing them to exit? I doubt it...
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