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VCs are scared when they should be greedy

blog.aaronkharris.com

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Re: VCs are scared when they should be greedy

#151

Post by vaidhy »

MegaButts wrote: post #3

> In contrast with the scenario in 2000, most of today’s tech companies are real businesses. How many of today's startups are just servicing each other with VC money? This isn't meant to be flippant - I'm genuinely curious (and while I bet it's a lot, I am skeptical it is overwhelming). I mean if we really look at some of the business models for these companies, they're clearly unsustainable. Uber is a prime example…

I think this is the wrong model to think about companies like Uber. Their business model is not based on unit economics, but on becoming a monopoly. Their goal was to seek rent permanently on the taxi business by putting all other taxi companies out of business. If you look at it that way, losing money to put competitors out of business seems like a viable strategy.

Re: VCs are scared when they should be greedy

#152

Post by cpursley »

dmix wrote: post #144
cpursley wrote: post #139

Earlier quoted context omitted.

100% - when interest rates are over 5% and/or gas is over $5, the delivery startups are toast. The economics just don't work. Especially when people start cutting back on conveniences.

Are you sure people wont just pay 10-15% more for an Uber taxi or SkipTheDishes? Those have become staples of peoples lives. It take a pretty significant change to stop people from using them to the point where it’d be a failure (of course there will a subset of more price sensitive people, especially during recessions).

$5+ gallon gasoline is a significant change for the normies budget. Especially with layoff clouds hovering above.

Re: VCs are scared when they should be greedy

#153

Post by pedalpete »

lpolovets wrote: post #22

(Context: I'm a VC) Some great points in the post, but I also see a few additional dynamics at play: 1) The last 10 years have been great for VCs and startups, but now VCs are thinking about how to make their funds last longer. Two reasons for this: first, time diversification matters. If you think markets might go down even more, you don't want to deploy the rest of your fund quickly, you want to spread it out over…

I've been trying to understand the medium-term implications of your first point for the market.

My understanding is that if a VC raised a $1B fund, and the fund lasts for 10 years, the investments really need to be made in the first 5 years.

If VCs are sitting on the sidelines now, AND making smaller investments, what happens in year 2 or 3 when they have to deploy those funds?

Do you think deal sizes will get outrageously large because of too much money in the system? Will there be another rush to sign deals to deploy the capital?

Does this get talked about by VCs? Am I completely misunderstanding how this will play out?

Re: VCs are scared when they should be greedy

#154

Post by dinvlad »

christophilus wrote: post #74
throwk8s wrote: post #27

Earlier quoted context omitted.

> If your unit economics don't work then you're fucked... From the company's perspective that's certainly true. As a regular person I'm more worried about the companies whose unit economics work too well. Companies like Amazon have so much momentum that it seems like they could go on indefinitely, instead of eventually failing and making room for new entrants. Companies whose unit economics don't work transfer wealth…

It's never happened, though. Buffett likes to say something along the lines of, "I like to invest in businesses that could be successfully run by a monkey, because eventually they will be." My prediction is that every behemoth of today will be tomorrow's Sears Roebuck, GE, West India Trading Company, etc. At some point, they'll become mired in bureaucracy. Enough incompetence will eventually rise to the top to allow…

I think the silver lining is at the time of their peak Sears etc. seemed unstoppable. And it took only a few decades for that to be undone. And that is basically guaranteed to happen to any behemoth simply by their inertia and inability to stay relevant for a long time.

Re: VCs are scared when they should be greedy

#155

Post by baby »

MegaButts wrote: post #3

> In contrast with the scenario in 2000, most of today’s tech companies are real businesses. How many of today's startups are just servicing each other with VC money? This isn't meant to be flippant - I'm genuinely curious (and while I bet it's a lot, I am skeptical it is overwhelming). I mean if we really look at some of the business models for these companies, they're clearly unsustainable. Uber is a prime example…

I have a hard time picturing uber failing. I take uber all the time, all my friends do as well, how can it fail?

Re: VCs are scared when they should be greedy

#156

Post by buu700 »

kypro wrote: post #150
MegaButts wrote: post #3

> In contrast with the scenario in 2000, most of today’s tech companies are real businesses. How many of today's startups are just servicing each other with VC money? This isn't meant to be flippant - I'm genuinely curious (and while I bet it's a lot, I am skeptical it is overwhelming). I mean if we really look at some of the business models for these companies, they're clearly unsustainable. Uber is a prime example…

> Uber is a prime example of a company that seems destined to fail. I'm not a fan of Uber, both as a company and as an investment thesis, but I think this is far too strong. Uber isn't prioritising profitability at the moment, so obviously the unit economics isn't going to work. I think the important question to ask here is if people continue to want to pay & hail taxis from their phone? If the answer to that is yes…

I think the important question to ask here is if people continue to want to pay & hail taxis from their phone? If the answer to that is yes then Uber will be fine so long as they're one of the apps that people continue to use to hail taxis. Personally I don't see taxi hailing apps going anywhere and I don't see Uber losing significant market share to its competition if they price competitively.

100% agreed. It wasn't that long ago that Amazon was starting to catch on in large part due to its (and more broadly the Internet's) reputation for low prices. Nowadays that's no longer the case, and yet here we are.

Where I think you have a point is in regards to Uber's potential operating margins. Is it reasonable to assign Google / Facebook sized margins to a company like Uber? Probably not [...] I'd argue taxi hailing apps (as they currently exist) are basically commodities.

I would also have to agree with this. I've long since used Lyft and Uber interchangeably depending on current local prices; a third-party app could easily go further to consolidate every major ride sharing service and automatically book the cheapest ride at any given time.

I see the trajectory of Uber and Lyft more as consolidating the market share of the taxi industry into a handful of owners than really creating a novel market or economics. The economies of scale and massive VC-backed war chests could make for viable stepping stones to bringing production-ready self-driving tech to market, which would change the economics, but last I heard it seems like Waymo is leading the pack there without the albatross of a massively unprofitable service business.

Re: VCs are scared when they should be greedy

#157

Post by saurik »

baby wrote: post #155
MegaButts wrote: post #3

> In contrast with the scenario in 2000, most of today’s tech companies are real businesses. How many of today's startups are just servicing each other with VC money? This isn't meant to be flippant - I'm genuinely curious (and while I bet it's a lot, I am skeptical it is overwhelming). I mean if we really look at some of the business models for these companies, they're clearly unsustainable. Uber is a prime example…

I have a hard time picturing uber failing. I take uber all the time, all my friends do as well, how can it fail?

Because it still isn't profitable and maybe never will be. I would still use it if it cost more -- hell: I'd probably use it more as I'd feel better about it ;P -- but a lot of people wouldn't as it is already a borderline-luxury for a lot of people. They continue to claim they are "drawing closer to profitability" -- as recently as a couple months ago, after reporting their first quarter earnings (which happened to show a $6b loss that isn't actually relevant as it was primarily due to investments instead of operations) -- but I feel like they have been saying that for a long time now? But sure: they might finally succeed in reaching at least "break even".

Re: VCs are scared when they should be greedy

#158

Post by ethanbond »

kypro wrote: post #150
MegaButts wrote: post #3

> In contrast with the scenario in 2000, most of today’s tech companies are real businesses. How many of today's startups are just servicing each other with VC money? This isn't meant to be flippant - I'm genuinely curious (and while I bet it's a lot, I am skeptical it is overwhelming). I mean if we really look at some of the business models for these companies, they're clearly unsustainable. Uber is a prime example…

> Uber is a prime example of a company that seems destined to fail. I'm not a fan of Uber, both as a company and as an investment thesis, but I think this is far too strong. Uber isn't prioritising profitability at the moment, so obviously the unit economics isn't going to work. I think the important question to ask here is if people continue to want to pay & hail taxis from their phone? If the answer to that is yes…

> I think the important question to ask here is if people continue to want to pay & hail taxis from their phone? If the answer to that is yes then Uber will be fine so long as they're one of the apps that people continue to use to hail taxis [and they figure out how to get their unit economics to work]

If they don’t get their unit economics figured out, not only will they not be Google/FB/etc., they will be nothing at all.

Re: VCs are scared when they should be greedy

#159

Post by wyre »

JumpCrisscross wrote: post #93
christophilus wrote: post #74

Earlier quoted context omitted.

It's never happened, though. Buffett likes to say something along the lines of, "I like to invest in businesses that could be successfully run by a monkey, because eventually they will be." My prediction is that every behemoth of today will be tomorrow's Sears Roebuck, GE, West India Trading Company, etc. At some point, they'll become mired in bureaucracy. Enough incompetence will eventually rise to the top to allow…

I agree with the premise. Success is never immortal. The gap, however, is in societies being intended to be immortal. If you let companies run amok, so the thinking goes, when goes the company so goes the country. Limiting companies’ power let’s them creatively destroy one another without threatening the culture at large.

I have an easier time seeing the fall of the US before I see the fall of Amazon.

Re: VCs are scared when they should be greedy

#160

Post by JakeAl »

MegaButts wrote: post #3

> In contrast with the scenario in 2000, most of today’s tech companies are real businesses. How many of today's startups are just servicing each other with VC money? This isn't meant to be flippant - I'm genuinely curious (and while I bet it's a lot, I am skeptical it is overwhelming). I mean if we really look at some of the business models for these companies, they're clearly unsustainable. Uber is a prime example…

This. Now do government contractors!
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