How can AI startups raise capital at sky-high valuations while losing money?
Because investors are betting on future dominance, not current P&L.
Thread:
Amazon ran e-commerce on razor-thin margins for a decade.
By 2006, net margin was < 2%.
But that's how they established dominance.
You can't compete with a company that keeps prices as low as feasible.
Once you own the market, you can optimize for margins.
Scale translates into profit through three levers:
1) Charging by outcomes or usage. 2) Bundling services to increase average revenue per user. 3) Capturing value across flows through marketplaces and take rates.
Companies can activate any of the 3 to capture more value.