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Dizzying Ride May Be Ending for Startups

nytimes.com

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Re: Dizzying Ride May Be Ending for Startups

#111

Post by exelius »

klochner wrote: post #51
exelius wrote: post #48

Earlier quoted context omitted.

It's not really possible for there to be a bubble at the seed stage -- valuations at that stage are "paper" values because there's zero liquidity. Companies also tend not to stay in the seed stage for long enough to cause an asset bubble; they are either able to acquire follow-on funding (at which point they're no longer a "seed" company) or they aren't and they disappear. The seed stage is increasingly crowded, but…

Interesting point re: not staying at the seed stage long enough for a bubble. What we're seeing instead is multiple preferences layered on in subsequent rounds. So seed/A investors think they're doing well when the company raises B,C,D,E rounds at higher valuations, when in fact many will be washed out when the company eventually IPOs or is acquired at a lower valuation than their last venture round.

That's what I would expect -- the more crowded the market, the less leverage you have, and the lower your eventual payoff.

There are lots of people willing to provide companies with small amounts of money in exchange for a gigantic potential payoff. As payoffs decrease, lenders will exit the market.

Re: Dizzying Ride May Be Ending for Startups

#112

Post by zzalpha »

austenallred wrote: post #109
zzalpha wrote: post #98

Earlier quoted context omitted.

Everyone worried about whether or not Facebook would ever be able to monetize, but it brought in $4 Billion in revenue last quarter. Last quarter! So let's do a little math. From this: http://www.forbes.com/sites/kathleenchaykowski/2015/04/22/fa... We see 1.44 billion monthly active users. That translates to about $12 a year per user. Think about that. Now think about the potential growth curve. And you're telling me…

> We see 1.44 billion monthly active users. That translates to about $12 a year per user. No, the $4 Billion in revenue was last quarter. In other words $48/user annually, not to mention the huge growth of even that number. That's why its market cap is ~$300 Billion. > Twitter can't break even. They report 320MM monthly active users which means they're pulling in about $7 per user per year in revenues, less than Face…

No, the $4 Billion in revenue was last quarter. In other words $48/user annually, not to mention the huge growth of even that number. That's why its market cap is ~$300 Billion.

Yup, that's my bad, sorry.

That said, unless they can continue to grow that number, their trajectory is based on subscriber growth, and that must necessarily flatten out.

Profit alone is just a bad way to value quickly growing companies

Agreed.

But a company that can't not lose money is not well positioned.

And the fact that Twitter's growth trajectory has flattened out only makes me more nervous.

In most cities they're not "illegal contract workers" even today

You're right.

They're illegal across the country according to federal labor regulations.

Uber and its ilk are almost certainly illegally classifying their workforce as contractors when they should be employees. It's actually a really easy line to cross, and if you ever work as an independent contractor, it's worth familiarizing yourself with the regulations as it obviously has significant tax implications, among other things.

This is the basis for this class action: http://uberlawsuit.com/

When that hammer comes down, Uber's profits will evaporate. They're also very likely to face similar legal action in other countries with similar labor protections (e.g. Canada).

And that's ignoring their violating taxi regulations all over the place (though I admit I have more sympathy for them in that regard, as I generally view those regulations as anti-competitive).

Re: Dizzying Ride May Be Ending for Startups

#113

Post by superuser2 »

rchaud wrote: post #74
superuser2 wrote: post #63

It's an interesting time to be a year from graduation in CS, that's for sure. Maybe the folks beating the STEM drum will finally shut up when CS sees employment comparable to underwater basket weaving.

That assumes that CS grads will look for work exclusively in a technology role. The skill set of a CS major is applicable to roles well outside programming. Management consulting and financial services for instance recruit CS and EE grads by the bucket load. CS employment in startups may decrease in the event of a startup bust, but mature companies like Apple, Amazon, Microsoft, Google, IBM etc. aren't likely to dras…

Oh sure, people will still hire programmers, but I expect conditions to worsen dramatically. The rockstar making a $100k+ salary in a $1000 chair on top-of-the-line hardware with free meals at the office experience is very much an artifact of the startup bubble. Mature tech companies offer that to stay competitive, but I expect we'll see a return to salaries closer to $50k in grey cubicle Pointy Haired Boss environments when the bubble bursts.

Re: Dizzying Ride May Be Ending for Startups

#114

Post by Ankaios »

creamyhorror wrote: post #70
hvs wrote: post #14

For those of you too young to remember, there were numerous articles written about the bubble bursting before it finally did in 2000-01. It wasn't a surprise that it did, just that no one knew precisely when it would. My point is that arguing that people have said this bubble was about to burst and that it hasn't yet isn't an argument that it won't.

"Unicorns Dropping Like Flies: First Dropbox; Then Square; Now Fidelity Cuts Snapchat Valuation By 25%" - Zero Hedge https://news.ycombinator.com/item?id=10546947 * Dropbox was warned by its investment bankers that it would be unable to go public at a valuation anywhere near close to what its last private round (which had most recently risen to $10 billion from $4 billion a year ago) valued it at. * Square, last priv…

  Snapchat, written down 25% by Fidelity ($31 -> $23)
Unfortunately that's probably not the correct way to estimate Snapchat's value based on Fidelity's assessment. Since Fidelity probably has a liquidation preference—and a recent one, at that—the implied new valuation of the company is much lower.

Depending, of course, on a whole bunch of details about the investment and Fidelity's assessment that I personally don't know.

Re: Dizzying Ride May Be Ending for Startups

#115

Post by Ankaios »

nissimk wrote: post #103
yummyfajitas wrote: post #45

Earlier quoted context omitted.

The housing bubble was a special case. It was more or less impossible to short until fairly late in the game (i.e. approximately the time when Burry actually did) - the market for CDS was not very liquid until synthetic CDOs came into the picture.

I'm pretty sure that it's also quite difficult to go short on non publicly traded equity.

Are there any swaps or other tools that provide a reasonable mechanism?

Re: Dizzying Ride May Be Ending for Startups

#116

Post by HillaryBriss »

zzalpha wrote: post #112
austenallred wrote: post #109

Earlier quoted context omitted.

> We see 1.44 billion monthly active users. That translates to about $12 a year per user. No, the $4 Billion in revenue was last quarter. In other words $48/user annually, not to mention the huge growth of even that number. That's why its market cap is ~$300 Billion. > Twitter can't break even. They report 320MM monthly active users which means they're pulling in about $7 per user per year in revenues, less than Face…

No, the $4 Billion in revenue was last quarter. In other words $48/user annually, not to mention the huge growth of even that number. That's why its market cap is ~$300 Billion. Yup, that's my bad, sorry. That said, unless they can continue to grow that number, their trajectory is based on subscriber growth, and that must necessarily flatten out. Profit alone is just a bad way to value quickly growing companies Agree…

Sure ... but ... what about the fact that consumers fucking LOVE to use Uber & Lyft? It's like marijuana or potato chips made of heroin. People can't get enough of that shit.

How popular will the politicians (e.g. state attorney generals) who push to destroy those businesses be with consumers/voters?

We don't have to look around very hard to see laws/regulations that go unenforced because politicians/regulators fear voter backlash.

Re: Dizzying Ride May Be Ending for Startups

#117

Post by ChuckMcM »

jacquesm wrote: post #107
ChuckMcM wrote: post #104

Earlier quoted context omitted.

I completely agree with you that using bankruptcy to defraud your investors, but as @angersock points out quite humourously, there are people who make their money just on the inside of "perfectly legal". Look at some of the more creative use of the bankruptcy code at Onlive. And since there are millions, perhaps billions of dollars worth of company at play here, the top people in this game get involved. And that is w…

There are even tons of people that make money just outside of perfectly legal and lots of them well into illegal! That doesn't make any of that ok though and you're definitely inviting scrutiny with such actions. It is definitely interesting but as someone who helped someone else deal with the fall-out from a bankruptcy where the management made use of these 'technicalities' to defraud creditors I can tell you that i…

We can only hope. I'm a big fan of punishing people who abuse the system in that way, but I prefer taking their gains and redistributing it to the people they took from rather than putting them in jail. I'd much rather have them scraping by trying to make ends meet at a transient hotel than living in jail cell at tax payer expense.

Re: Dizzying Ride May Be Ending for Startups

#118

Post by zzalpha »

HillaryBriss wrote: post #116
zzalpha wrote: post #112

Earlier quoted context omitted.

No, the $4 Billion in revenue was last quarter. In other words $48/user annually, not to mention the huge growth of even that number. That's why its market cap is ~$300 Billion. Yup, that's my bad, sorry. That said, unless they can continue to grow that number, their trajectory is based on subscriber growth, and that must necessarily flatten out. Profit alone is just a bad way to value quickly growing companies Agree…

Sure ... but ... what about the fact that consumers fucking LOVE to use Uber & Lyft? It's like marijuana or potato chips made of heroin. People can't get enough of that shit. How popular will the politicians (e.g. state attorney generals) who push to destroy those businesses be with consumers/voters? We don't have to look around very hard to see laws/regulations that go unenforced because politicians/regulators fear…

Sure ... but ... what about the fact that consumers fucking LOVE to use Uber & Lyft?

People also LOVE cheap clothes and electronics.

And yet, we all seem to generally agree that sweatshops and child labour are maybe not worth it just to get a novelty t-shirt or an iPhone at low low prices.

How popular will the politicians (e.g. state attorney generals) who push to destroy those businesses be with consumers/voters?

I don't think you understand.

These laws already exist.

If Uber loses, and odds are pretty damn good they will, they'll lose in the courts. This doesn't require an attorney general or a politician. All this requires is a willing lawyer to launch a class action, which has already happened, and a court system willing to enforce the law even if it's unpopular. Boy, I can't imagine when that last happened...

The only option, if they want to preserve their existing business model, is for Uber would then be to lobby the government to turn back the very labor laws that protect everyone from exploitation by their employers, while very fundamentally changing a key part of the tax code.

All to ensure folks can get a cheap car ride.

Good luck with that.

In reality, the solution will almost certainly be for Uber to allow drivers to set their own rates, which might clear them (maybe... see https://www.irs.gov/Businesses/Small-Businesses-&-Self-Emplo...). That'll almost certainly cause rate inflation and destroy one of Uber's key competitive advantages. It could also lead to uncontrolled surge pricing as drivers would naturally inflate their rates during rush periods.

Could they survive that? Maybe. Assuming the taxi regulations don't kill them, as we're seeing overseas.

Re: Dizzying Ride May Be Ending for Startups

#119

Post by brandnewlow »

ChuckMcM wrote: post #59
bcantrill wrote: post #46

Earlier quoted context omitted.

You're misunderstanding the essential point of @hvs's comment: it's not that some people predicted the bust (though that was certainly true), it's that the articles that indicated a bust was coming helped instill a collective sense the boom couldn't last forever. This is very important because it preconditions everyone for the bust -- and when the bust comes, it accelerates stunningly quickly. Having lived through tw…

This is exactly right, bubbles are a sort of "mass hysteria" where everyone in the herd is trying to get the most for themselves. Generally to be successful you need otherwise rational people to put aside reason and to invest in the belief that things are going up. And they do, and you get these things. And when that belief is dispelled, they go elsewhere. What isn't well spelled out is how people step out of the bub…

You basically just described what Tribune Company did over the last few years. 8 years ago they owned the Chicago Cubs, a bunch of profitable TV stations, and a bunch of newspapers that were in big trouble.

They sold the Cubs and created two new companies, Tribune Media and Tribune Publishing. Tribune Media got all the TV stations and holdings in internet companies. Tribune Publishing consists of all the newspapers.

The best part is that Tribune Media kept Tribune Tower in Chicago, home of the newspaper, and makes Tribune Publishing lease it from them.

Re: Dizzying Ride May Be Ending for Startups

#120

Post by HillaryBriss »

zzalpha wrote: post #118
HillaryBriss wrote: post #116

Earlier quoted context omitted.

Sure ... but ... what about the fact that consumers fucking LOVE to use Uber & Lyft? It's like marijuana or potato chips made of heroin. People can't get enough of that shit. How popular will the politicians (e.g. state attorney generals) who push to destroy those businesses be with consumers/voters? We don't have to look around very hard to see laws/regulations that go unenforced because politicians/regulators fear…

Sure ... but ... what about the fact that consumers fucking LOVE to use Uber & Lyft? People also LOVE cheap clothes and electronics. And yet, we all seem to generally agree that sweatshops and child labour are maybe not worth it just to get a novelty t-shirt or an iPhone at low low prices. How popular will the politicians (e.g. state attorney generals) who push to destroy those businesses be with consumers/voters? I…

But sweatshops are often where our cheap clothes and electronics actually come from right now despite everyone's agreement that they're bad.

Also, I'm not sure what would make you think that I do not understand that these laws already exist. I mentioned a state attorney general precisely because an attorney general enforces/ignores existing laws.

But, sure, you make an excellent point about the very real lawsuits which have already been filed.

Reading the rest of your response, your assessment seems to be that maybe Uber can survive. That's what I think too.

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