I disagree with the concept that a business isn’t valued on its future cash flows. It always is, but with startup businesses, certain rules of thumb are used to ballpark guesstimate future cash flows. Meta was not profitable for a long time, but it was fantastically valuable, because people could see that it would be profitable someday. Investors were willing to pay for those juicy future profits which were hard to quantify and estimate by conventional extrapolation of a growth rate. What happens as a business goes from angels to VCs to PE to public ownership is that the experts in one set of ballpark estimations of cash flow give way to experts in other types of ballpark guesstimation.
I think that's sorta true, but only in a really abstract way. Sure, people value small startup equity because it could become big startup equity, which could become public company equity, which could eventually pay dividends, which could eventually pay the shareholder back for what they bought the share for. But I think that's all a kind of collective illusion that is necessary to hold the whole thing up, when in reality, the only reason anyone buys shares in a lot of companies is because they think someone else will buy them for more later.
For example, Facebook IPOed 13 years ago at $40 a share. They didn't pay a dividend until 2024, have paid $2.50 total since the IPO, and now trade at $500. Nobody bought into the IPO, or traded the stock up by 1000%, for those shareholder profits.
It's more directly about SEC filings and not dividends, but the logic is the same. Both of those things make it possible to invest in startups via "backwards financial induction," but they aren't really why anyone invests. A long couple quotes from that article:
---
It is conventional to say that if you buy a share of Meta stock, which closed yesterday at $313.41, you are “investing in Meta.” But what does that mean? It does not mean that you are giving $313 to Meta to use to buy computers or pay workers; your $313 does not go to Meta at all, but to whoever else had the share of stock before you did. It does not mean that you get a check for your share of Meta’s profits: Meta has enormous profits and has never paid a dividend. (Meta does do stock buybacks, in which it voluntarily buys back shares from time to time, but I suppose it could just as well buy Apple Inc. shares; nothing about Meta’s propensity to buy Meta shares seems to make those shares an “investment in” Meta.) It does not mean that you get a say in the management of Meta: Mark Zuckerberg owns super-voting shares and can make all the decisions himself. It does mean that if someone acquires Meta in a merger, you will get your proportionate share of the merger price, but Meta is an $800 billion company so that seems unlikely.
And yet buying a share of Meta stock does seem, practically speaking, to be a way to bet on Meta’s success. The stock goes up when Meta has good news and down when it has bad news; the stock does behave like an investment in Meta. And I think that that is not pure wishful thinking or confusion on the part of the stock market; there are norms and fiduciary duties and expectations that, for instance, if Meta makes a ton of cash and has no business need for it, it will spend the cash on buying back stock, and will not spend it on building giant glass houses for Mark Zuckerberg or whatever. The company has certain obligations to its shareholders, and though those obligations are not exactly “share the profits with the shareholders,” that is sort of how the market interprets them.
...If you buy Meta stock today, you might be buying it from someone who bought it from Meta all those years ago, and who is now cashing out. Probably not. But you are certainly buying it from someone who bought it from someone who bought it from someone who bought it from … etc. … someone who bought it from Meta all those years ago. All the stock came from Meta, originally. You are not giving Meta any money, today, when you buy Meta stock. But by a sort of financial backward induction, you are making it possible for someone to have given Meta money years ago. If you and people like you weren’t around to buy Meta stock in 2023, nobody would have bought Meta stock in 2008.
...If you buy Meta stock, is that an investment contract? Is it “an investment of money in a common enterprise,” when you are not actually giving Meta any money? Are you expecting profits “solely from the efforts of others” — the work that Mark Zuckerberg does to increase the profits of Meta — when, after all, Meta has no direct obligation to share its profits with you? Aren’t you just expecting profits from the speculative market movements in Meta stock? If you buy Meta stock at $313 and it goes to $320 and you sell, you have a profit, but your profit is not due (directly) to the efforts of anyone at Meta; your profit is due to the anonymous inscrutable market forces of the stock exchange.
Brilliant take (as always), Benn. For all the ink we spill on "mission" and “vision" statements, I wonder if startups would be better off just admitting their mission is to win the startup game and get rich. Doing so would likely create better clarity and alignment than exists in most companies. It wouldn't be politically correct, but it would be honest.
Yours is the first post I read when I open Substack. Keep up the great writing.
Yeah, very much agreed. I wrote a thing about this a while back actually. Values and all are great, but "we have to survive to make money" is probably the only one that is ever truly unbreakable: https://benn.substack.com/p/your-companys-values-will-be-used
Fantastic article - thank you for articulating this idea so clearly. I love the idea of asset vs business. I used to harbor a lot of resentment towards these ‘founders’, but I honestly find it harder and harder to blame them. It seems like the only thing standing between them and a $100M+ buyout is creating a GPT-wrapper and finding a VC Bro that thinks you’re cool.
Thanks, and I don't know that I'm quite that cynical about it? A $100m exit is still very hard, because I do think you have to make something valuable or popular; it just doesn't need to be valuable for all that long. I think I startups vs "normal businesses" as being similar to posting a very viral meme vs writing something that is nuanced and thoughtful. In both cases, the former is "easier" in the sense that it might be less work in an absolute sense, but it's still really hard to create something that explosive, even if that's the goal.
I'm really not part of this world - but the entire VC / startup world has always struck me as simply gambling for fun with a lot of your friends. And people LOVE to gamble. Just look at the rise of FanDuel,DraftKing, etc.
The crazy part about it is I think it works because VCs enjoy it just as much as founders/startup employees. Its a game everyone gets to play together that is pretty much just for fun (even when people act like its not). VCs don't actually need the money (as far as physical survival). Founders and early employees typically could go get a high paying tech job somewhere else if they wanted to...
The irony is a lot of the game gets way over dramatized into (life or death) scenarios. Always declaring things dead or talking as if something is about to die.
I don't think AI will change the above fundamentals, it just may look a little bit different.
Promise somebody a stable couple hundred thousand per year vs a potential payout of 1 million dollars (and less per year) - the gambler wants the big payout.
For sure, at least loosely so. I don't think it's all for money exactly (also power, fame, status, iMpAcT, whatever), but yeah, the whole ecosystem attracts a lot of people who are generally pretty disdainful of the well-paid lifestyle job.
I don't begrudge the dramatized stuff too much, so long as whoever's doing it knows it's all kinda fake. If startups and all that are your thing, then sure, get excited about it in the same way people get amped about sports and politics and celebrity gossip and other hobbies. But it seems bad when you start to lose that perspective, and suddenly think, no, the drama in the whatever niche corner of Silicon Valley you run in is real, and the Blake Lively drama is not.
(Which, also, these things aren't perfect, and who knows how good that means it actually is. But the exact details are sort of whatever to me; the overall point is mostly the models are getting cheaper and better, and it's happening pretty quickly.)
Yeah, that's part of why the people who are the best at this seem crazy, because they have to believe in what they're doing so much that they *aren't* really aware of any of this (or, more exactly, they're aware that some companies are like this, but they don't believe that theirs is). To build a huge company like Facebook or whatever, you have to make a bunch of objectively irrational decisions, like not selling when you're offered billions of dollars multiple times.
I disagree with the concept that a business isn’t valued on its future cash flows. It always is, but with startup businesses, certain rules of thumb are used to ballpark guesstimate future cash flows. Meta was not profitable for a long time, but it was fantastically valuable, because people could see that it would be profitable someday. Investors were willing to pay for those juicy future profits which were hard to quantify and estimate by conventional extrapolation of a growth rate. What happens as a business goes from angels to VCs to PE to public ownership is that the experts in one set of ballpark estimations of cash flow give way to experts in other types of ballpark guesstimation.
I think that's sorta true, but only in a really abstract way. Sure, people value small startup equity because it could become big startup equity, which could become public company equity, which could eventually pay dividends, which could eventually pay the shareholder back for what they bought the share for. But I think that's all a kind of collective illusion that is necessary to hold the whole thing up, when in reality, the only reason anyone buys shares in a lot of companies is because they think someone else will buy them for more later.
For example, Facebook IPOed 13 years ago at $40 a share. They didn't pay a dividend until 2024, have paid $2.50 total since the IPO, and now trade at $500. Nobody bought into the IPO, or traded the stock up by 1000%, for those shareholder profits.
Matt Levine has a good article that's adjacent to this, here: https://www.bloomberg.com/opinion/articles/2023-07-14/ripple-is-a-security-and-it-isn-t
It's more directly about SEC filings and not dividends, but the logic is the same. Both of those things make it possible to invest in startups via "backwards financial induction," but they aren't really why anyone invests. A long couple quotes from that article:
---
It is conventional to say that if you buy a share of Meta stock, which closed yesterday at $313.41, you are “investing in Meta.” But what does that mean? It does not mean that you are giving $313 to Meta to use to buy computers or pay workers; your $313 does not go to Meta at all, but to whoever else had the share of stock before you did. It does not mean that you get a check for your share of Meta’s profits: Meta has enormous profits and has never paid a dividend. (Meta does do stock buybacks, in which it voluntarily buys back shares from time to time, but I suppose it could just as well buy Apple Inc. shares; nothing about Meta’s propensity to buy Meta shares seems to make those shares an “investment in” Meta.) It does not mean that you get a say in the management of Meta: Mark Zuckerberg owns super-voting shares and can make all the decisions himself. It does mean that if someone acquires Meta in a merger, you will get your proportionate share of the merger price, but Meta is an $800 billion company so that seems unlikely.
And yet buying a share of Meta stock does seem, practically speaking, to be a way to bet on Meta’s success. The stock goes up when Meta has good news and down when it has bad news; the stock does behave like an investment in Meta. And I think that that is not pure wishful thinking or confusion on the part of the stock market; there are norms and fiduciary duties and expectations that, for instance, if Meta makes a ton of cash and has no business need for it, it will spend the cash on buying back stock, and will not spend it on building giant glass houses for Mark Zuckerberg or whatever. The company has certain obligations to its shareholders, and though those obligations are not exactly “share the profits with the shareholders,” that is sort of how the market interprets them.
...If you buy Meta stock today, you might be buying it from someone who bought it from Meta all those years ago, and who is now cashing out. Probably not. But you are certainly buying it from someone who bought it from someone who bought it from someone who bought it from … etc. … someone who bought it from Meta all those years ago. All the stock came from Meta, originally. You are not giving Meta any money, today, when you buy Meta stock. But by a sort of financial backward induction, you are making it possible for someone to have given Meta money years ago. If you and people like you weren’t around to buy Meta stock in 2023, nobody would have bought Meta stock in 2008.
...If you buy Meta stock, is that an investment contract? Is it “an investment of money in a common enterprise,” when you are not actually giving Meta any money? Are you expecting profits “solely from the efforts of others” — the work that Mark Zuckerberg does to increase the profits of Meta — when, after all, Meta has no direct obligation to share its profits with you? Aren’t you just expecting profits from the speculative market movements in Meta stock? If you buy Meta stock at $313 and it goes to $320 and you sell, you have a profit, but your profit is not due (directly) to the efforts of anyone at Meta; your profit is due to the anonymous inscrutable market forces of the stock exchange.
Brilliant take (as always), Benn. For all the ink we spill on "mission" and “vision" statements, I wonder if startups would be better off just admitting their mission is to win the startup game and get rich. Doing so would likely create better clarity and alignment than exists in most companies. It wouldn't be politically correct, but it would be honest.
Yours is the first post I read when I open Substack. Keep up the great writing.
Yeah, very much agreed. I wrote a thing about this a while back actually. Values and all are great, but "we have to survive to make money" is probably the only one that is ever truly unbreakable: https://benn.substack.com/p/your-companys-values-will-be-used
Fantastic article - thank you for articulating this idea so clearly. I love the idea of asset vs business. I used to harbor a lot of resentment towards these ‘founders’, but I honestly find it harder and harder to blame them. It seems like the only thing standing between them and a $100M+ buyout is creating a GPT-wrapper and finding a VC Bro that thinks you’re cool.
Thanks, and I don't know that I'm quite that cynical about it? A $100m exit is still very hard, because I do think you have to make something valuable or popular; it just doesn't need to be valuable for all that long. I think I startups vs "normal businesses" as being similar to posting a very viral meme vs writing something that is nuanced and thoughtful. In both cases, the former is "easier" in the sense that it might be less work in an absolute sense, but it's still really hard to create something that explosive, even if that's the goal.
Nailed it
I'm really not part of this world - but the entire VC / startup world has always struck me as simply gambling for fun with a lot of your friends. And people LOVE to gamble. Just look at the rise of FanDuel,DraftKing, etc.
The crazy part about it is I think it works because VCs enjoy it just as much as founders/startup employees. Its a game everyone gets to play together that is pretty much just for fun (even when people act like its not). VCs don't actually need the money (as far as physical survival). Founders and early employees typically could go get a high paying tech job somewhere else if they wanted to...
The irony is a lot of the game gets way over dramatized into (life or death) scenarios. Always declaring things dead or talking as if something is about to die.
I don't think AI will change the above fundamentals, it just may look a little bit different.
Promise somebody a stable couple hundred thousand per year vs a potential payout of 1 million dollars (and less per year) - the gambler wants the big payout.
For sure, at least loosely so. I don't think it's all for money exactly (also power, fame, status, iMpAcT, whatever), but yeah, the whole ecosystem attracts a lot of people who are generally pretty disdainful of the well-paid lifestyle job.
I don't begrudge the dramatized stuff too much, so long as whoever's doing it knows it's all kinda fake. If startups and all that are your thing, then sure, get excited about it in the same way people get amped about sports and politics and celebrity gossip and other hobbies. But it seems bad when you start to lose that perspective, and suddenly think, no, the drama in the whatever niche corner of Silicon Valley you run in is real, and the Blake Lively drama is not.
Sorry but where in the article you link to that describes flash 2.5 actually say it’s comparable to 2.5 pro at coding performance?
It doesn't say it directly; it's in the benchmark scores. On the LiveCodeBench v5 score:
- Gemini 2.0 Flash - 34.5%
- Gemini 2.5 Flash - 63.5%
- Gemini 2.5 Pro - 70.4%
Flash scores in the first link; Pro score in the second one:
- https://blog.google/products/gemini/gemini-2-5-flash-preview/
- https://blog.google/technology/google-deepmind/gemini-model-thinking-updates-march-2025/#gemini-2-5-pro
(Which, also, these things aren't perfect, and who knows how good that means it actually is. But the exact details are sort of whatever to me; the overall point is mostly the models are getting cheaper and better, and it's happening pretty quickly.)
Got it thanks
It’s curious for the 2.5 pro they showed the swe bench score but not for 2.5 flash
Oh well 🤷🏻♂️
Yeah, I'm sure there's some monkeying around with scores for this stuff. I don't put a ton of stock in the specifics.
🙈
Not for Everyone. But maybe for you and your patrons?
Hello Benn,
I hope this finds you in a rare pocket of stillness.
We hold deep respect for what you've built here—and for how.
We’ve just opened the door to something we’ve been quietly handcrafting for years.
Not for mass markets. Not for scale. But for memory and reflection.
Not designed to perform. Designed to endure.
It’s called The Silent Treasury.
A sanctuary where truth, judgment, and consciousness are kept like firewood—dry, sacred, and meant for long winters.
Where trust, vision, patience, and stewardship are treated as capital—more rare, perhaps, than liquidity itself.
The 3 inaugural pieces speak to quiet truths we've long engaged with:
1. The Hidden Costs of Clarity Culture — for long term, irreversible decisions
2. Why Judgment, ‘Signal’, and Trust Migrate Toward Niche Information Sanctuaries
3. Why many modern investment ecosystems (PE, VC, Hedge, ALT, spac, rollups) fracture before they root
These are not short, nor designed for virality.
They are multi-sensory, slow experiences—built to last.
If this speaks to something you've always felt but rarely seen expressed,
perhaps these works belong in your world.
One publication link is enclosed, should you choose to start experiencing.
https://helloin.substack.com/p/from-brightness-to-blindness-the?r=5i8pez
Warmly,
The Silent Treasury
Yeah, that's part of why the people who are the best at this seem crazy, because they have to believe in what they're doing so much that they *aren't* really aware of any of this (or, more exactly, they're aware that some companies are like this, but they don't believe that theirs is). To build a huge company like Facebook or whatever, you have to make a bunch of objectively irrational decisions, like not selling when you're offered billions of dollars multiple times.