Venture Capital.
It absorbs the losses made by the startup.
The VC Investment Model enables a startup to make whopping losses, still serve customers, reward investors, founders and employees with outsized riches.
VCs can fund loss making companies and still gain outsized riches because those companies gain quantum jumps in valuation from one funding round to another, thus enabling investors who invested in the company at a certain round to exit with multibagger returns at a later round of funding.
Companies gain quantum jumps in valuation from one round to another despite racking up even more losses during that period because their investors believe that, one day these companies will have outsized dominance over their markets and start delivering outsized profits.
You can find more details in Teardown Of The VC Investment Model.
On paper, the VC Investment Model might sound a bit self-referential and circular but the existence of companies like Flipkart, Uber and PayTM, and dozens of others, proves that it works in actual practice.
People have also postulated that the model is a bubble and have predicting that the bubble will burst the next year for the last 5–10 years. Still it hasn’t burst. And, even if it bursts one day, the next bubble won’t be long in the making because, by the very nature of this model, the amount of money made for years when the bubble was growing is arguably far greater than the amount of money that would be lost momentarily if and when the bubble eventually bursts.