How do tech companies spend 100's of millions?

https://news.ycombinator.com/item?id=13770926

by Apane • 9 years ago

7 9 9 years ago

news.ycombinator.com

I just read about instacart raising $400 million, I've read that AirBNB has raised over $1B, I'm curious as to how these companies spend that much money.

From my understanding, these companies have identified sales tactics that work, and marketing tactics that work, so I'd imagine some of the money would go towards supercharging their sales team's and marketing teams etc... but still, 400 million? Why so much? How do they spend it?

pinewurst• 9 years ago

Massive infrastructure expenditures (prepaid cloud or custom datacenter construction), high salaries, paying Beyonce to perform at company parties, deciding to invest in robot cars, drones and space travel, etc. The usual...

WalterSear• 9 years ago

Much of customer service and sales can't be scaled via technology, particularly in the B2smallB markets (ie - AirBnb), where there is a requirement for business level support.

I've seen huge 'boiler room' setups at companies of this nature, with rows upon rows of support representatives in one big room.

miguelrochefort2• 9 years ago

Much of customer service and sales can't be scaled via technology

I don't see why not. This looks like an important business opportunity.

CyberFonic• 9 years ago

The top executives are buying luxury cars, yachts, homes. Paying for "entertainment", etc. Not to mention their advisors, etc. Have you looked at what the bankers take from a successful IPO? It would make your eyes water.

When companies raise a pile of money, they hire a bunch of managers, consultants, etc. Then they need executive offices, expense accounts, etc.

integral_indigo• 9 years ago

This isn't helpful.

idoh• 9 years ago

On a more serious note, once a company has developed a business model where the cost of acquiring users is less than the lifetime value of those users, then it can make sense to pour in massive amounts of money into getting those users. So I'd venture to say that those companies are in such a position and are scaling UA with the hope to recoup the $$ down the road.

akulbe• 9 years ago

Labor. The most expensive part of any business is still the labor.

miguelrochefort2• 9 years ago

These companies are managed by people who lack focus and a sense of frugality.

- The kind of people that expand their product line instead of focusing of the 20% that generates 80% of profits

- The kind of people that would buy Starbucks daily even if they lived paycheck to paycheck.

malux85• 9 years ago

Starting out early in the startup journey it is likely that money is more scarce than time. So you develop a strategy to optimize the scarce resource - frugality, resourcefulness, creativity

After a company gets a large amount of funding, suddenly time is more scarce than money.

You need project X to succeed in the next month, and that might mean putting 2 to 3 vendors on the problem and picking the best result. Yes this is more expensive, but we're now optimising for time

Another strategy is acquisition of technology and talent, if you have 400 million in funding, then it makes sense economically to purchase a infrastructure team of tech company at 10 million, when you know it's going to generate 100M in value for you.

The best companies are ones where strategy is fluid and willing to adopt to the reality of dynamic resource scarcity.

How do tech companies spend 100's of millions?

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