What gave you the idea that investors are driven by ethics? Investment is about ROI. Investing in startups is no different from investing in stocks. You gage what will have the highest ROI and invest in that, expecting most of your investments to fail spectacularly but a small portion of it growing big enough to make up for the losses.
This is where the distinction between startups and lifestyle businesses comes in.
Startups operate at a loss and aim to make themselves tasty enough for bigger companies to swallow them (allowing the founders to cash out and the company that buys them to use their team or technology, or at least make sure the competitors can't do the same). They bleed ridiculous amounts of money, but grow ridiculously fast and are intentionally short-lived.
Lifestyle businesses aim to be profitable as soon as possible. Their growth rate is unimpressive but they can usually get by with nearly zero investment -- not that their prospect would be of any interest to investors in the first place. They may "get lucky" and cash out at some point or just wither and die if they become unprofitable and can't pivot.
There are some companies that fall in-between and the semantics are fuzzy as always. A startup may actually grow so big it becomes a direct competitor to the companies that might otherwise be interested in swallowing it or it might be so good at funding itself that its income stabilizes (with or without additional investors).
But at the end of the day, most investors want ROI. They don't fund startups because they're nice people, they fund startups because they have money and want to have more money later. The nicer ones may actually have some interest in the company and help the startup grow (and thus make them more money when they cash out), but it's unreasonable to expect them to be motivated by altruistic ideals.
This won't change. Why should it? Sure, it could all blow up like every bubble does eventually, but at the end of the day you will always have people with a big disposable income looking for ways to make more money (whether it's because they actually want more money or just because they see it as a sport and ROI is a good metric to measure how good they are at it).
Because too many 'investors' are losing too much money on stupid non-projects. And the ROI you claim is the motivation is clearly not there.
But wait! Maybe losing money is the point.
Maybe, anthropologically speaking, being able to waste money on startups is some kind of potlach-style social signalling game which 'investors' use to reinforce their own status.
Think this is far fetched? If so, explain to me why the ROI across the VC scene as a whole is so wretchedly bad compared to other investment opportunities, but it keeps getting money thrown at it regardless - even when this means starving viable but unsexy bootstrapped businesses that don't have Startup Appeal [tm], but are more likely to be both useful and profitable in the medium to long term.
I guess you could look at it as a sport then. Race cars and speed boats aren't a sound investment even if you occasionally drive them competitively, but they can be fun and are social indicators.
There's not much of a point in investing in unsexy bootstrapped businesses because they're stable. Stability is boring. If you can turn a funded startup that is bleeding money left and right into a profit, that's a much bigger thrill to the investor.
But it's not only VCs. "Serial entrepreneurs" pretty much admit they're in it as a sport.
That said, I wouldn't be surprised if a lot of stock market investors weren't in it as a sport either. The amount you win or loose isn't as important as the thrill of winning or loosing.
This is where the distinction between startups and lifestyle businesses comes in.
Startups operate at a loss and aim to make themselves tasty enough for bigger companies to swallow them (allowing the founders to cash out and the company that buys them to use their team or technology, or at least make sure the competitors can't do the same). They bleed ridiculous amounts of money, but grow ridiculously fast and are intentionally short-lived.
Lifestyle businesses aim to be profitable as soon as possible. Their growth rate is unimpressive but they can usually get by with nearly zero investment -- not that their prospect would be of any interest to investors in the first place. They may "get lucky" and cash out at some point or just wither and die if they become unprofitable and can't pivot.
There are some companies that fall in-between and the semantics are fuzzy as always. A startup may actually grow so big it becomes a direct competitor to the companies that might otherwise be interested in swallowing it or it might be so good at funding itself that its income stabilizes (with or without additional investors).
But at the end of the day, most investors want ROI. They don't fund startups because they're nice people, they fund startups because they have money and want to have more money later. The nicer ones may actually have some interest in the company and help the startup grow (and thus make them more money when they cash out), but it's unreasonable to expect them to be motivated by altruistic ideals.
This won't change. Why should it? Sure, it could all blow up like every bubble does eventually, but at the end of the day you will always have people with a big disposable income looking for ways to make more money (whether it's because they actually want more money or just because they see it as a sport and ROI is a good metric to measure how good they are at it).