These companies are intentionally walking a careful line of spending a ton of money to create a market-leading product and to capture as much of the market as possible early on. They could easily be cash-flow positive and take on less investment, but it's also very possible that competing products or service providers will overtake them or become dominant in the market they are trying to establish for themselves.
So you don't want to miss out on the opportunity to be the big fish in your pond (you may be unable to keep making money in the long term if you aren't the market leader), but you don't want to grow your costs so fast that you can never catch up.
That's the balancing act being played. And your early-stage investors who have lots of control will push hard to play it aggressively in later stages, because they want to make huge returns. And when there are people out there willing to give you tens of millions of dollars and by extension several years more guaranteed life of your company without you having to do the hard work to hammer out actual profit anytime soon, it's going to be hard if not impossible to turn down.
> but it's also very possible that competing products or service providers will overtake them or become dominant in the market they are trying to establish for themselves.
It's not really possible, they are just playing the startup game. Honest non Patreon sounding justifications are pretty hard to come up with at this point.
So you don't want to miss out on the opportunity to be the big fish in your pond (you may be unable to keep making money in the long term if you aren't the market leader), but you don't want to grow your costs so fast that you can never catch up.
That's the balancing act being played. And your early-stage investors who have lots of control will push hard to play it aggressively in later stages, because they want to make huge returns. And when there are people out there willing to give you tens of millions of dollars and by extension several years more guaranteed life of your company without you having to do the hard work to hammer out actual profit anytime soon, it's going to be hard if not impossible to turn down.