No, I only need to assume that at least some capitalisation comes from people who intend to resell at least some of their commitment relatively quickly in a secondary market. If their money is left on the table, and it is a significant amount of money, it's inefficient.
Fortunately, that's an empirical question: How much investment into emerging companies came from investors, as opposed to securing a revenue stream from the customers before launch? Unfortunately, I don't have the data at hand to answer that question.
- Jake If you only spend 20 minutes of the rest of your life on economics, go spend them here.
Have to be a damn fool to buy into an IPO but there seems to be plenty of damn fools running around ... and we know what happens to their money!
US stock markets operate under the Greater Fool Theory.
securing a revenue stream from the customers before launch
Ouch. That's tough enough when you have a going concern and an existing product - for example, a manufacturer of bespoke machine tools will be lucky to get 10% up front, the rest paid in installments as milestones are hit over the project period (say, 18 mo.). But an established company can often get financing to cover the cash flow.
It would be damn near impossible for a startup with no track record to finance development and manufacture of an unproven product through advanced sales (unless they're very good at marketing to morons). The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman
