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Silicon Valley Venture Capitalists Prepare for an I.P.O. Wave

144 points by raleighm 9y ago

asabhi 9y ago
There are some good and some not so good among these companies. Uber is a taxi company with an app. Cars still cost the same as before to run, drivers still cost the same as before, all costs are the same as before. So once the subsidization by VCs stops, Uber rides will be as expensive as any other ride. Self-driving cars will not save Uber either. There is no network effect with self-driving cars, and once the technology is ready it will be commoditized, and Uber will have no advantage. As a rider, it's great to use it while you can, but there is no actual business there. Airbnb on the there hand has all the advantages people like to see in a business.
- posix_compliant 9y ago
  I disagree. Uber facilitates the process of becoming a driver, therefore there will be a larger supply of drivers. I believe the price of a fare will decrease due to the increased competition.
  - Retric 9y ago
    Amortization over say 20 fairs per day * 20 days a month * 12 months a year, reducing the cost by 1 cent per ride per ~50$ dollars in cost savings. Suggests it's just not a meaningful savings.
    - posix_compliant 9y ago
      Where are you getting the 1 cent reduction quantity? My only point was that a greater supply of drivers could yield a lower price, but I never asserted to what degree the price would decrease.
      - Retric 9y ago
        Increasing costs to add a driver does not prevent company's from adding new drivers it just makes that more expensive. Thus, you need to consider it as another form of cost savings not a difference in the number of drivers. A company that pays 50$ less to get an employee can reduce fairs on the order of 1 cent or make an extra 1 cent per ride. It's possible Uber might add a few cents per ride this way, but it's not particularly significant even assuming the average driver does not last that long.
  - loeg 9y ago
    Also facilitates becoming a rider through ease of use/payment. And more riders, more revenue even with the same margins. The app is much smoother than the 2011-era cab experience — call a phone dispatcher, hope a cab shows up eventually. (Of course, Lyft provides exactly the same experience for consumers and even taxi companies are attempting to provide an app nowadays.)
  - dbasedweeb 9y ago
    Has Uber stopped operating at a massive loss, subsidizing every ride with VC cash? Fares are already artificially and unsustainably depressed, and without Lvl 5 automation (clearly not incoming soon) the fares eventually have to rise. Those fares will rise even more as driver backlash against how little they’re paid increases with time.
- BurningFrog 9y ago
  My impression is that Uber is making money of the rides. It loses money on all its other research and investment schemes. I don't know if there are any actual facts out?
  - Retric 9y ago
    No, "Uber passengers paid only 41% of the cost of their trips for the fiscal year ended in September 2015." Prices have not changed much since then, so they are a long way from break even. https://www.reuters.com/article/us-uber-profitability/true-price-of-an-uber-ride-in-question-as-investors-assess-firms-value-idUSKCN1B3103 https://www.reuters.com/article/us-uber-profitability/true-p...
    - wenttomarket 9y ago
      Prices haven’t changed much in the US but Uber has divested some of its most expensive investments around the world (China, Russia, APAC).
    - lathiat 9y ago
      That's assuming the only reason they paid that much of those trips was because of price. That's not true of how Uber operates. They do a lot of things like driver incentives (for being logged on a certain amount of time etc, or for signing up in the first place - a lot of this is during market setup for a given city), complete discounted rides based on new signups for riders, etc. You can assume as their penetration into the market saturates for both drivers and riders that both of these costs will diminish. A lot of people on Hacker News being US based also ignore the fact that Uber is highly international. I use it almost everywhere I travel for work, I think Malta was one of the few places they weren't. Lyft and similar competitors are mostly either US-specific or even city-specific. There is a lot of different economies in other regions to look at.
    - BurningFrog 9y ago
      I just don't get where the money goes if that's true. If I pay $10 for a ride, $7 goes to the driver, which covers all the cost for the car, gas, his wage etc. $3 goes to Uber. What marginal costs do the have for my ride that are anywhere close to that?
- xsmasher 9y ago
  Re: "all costs are the same as before" If you mean the same as running a Taxi, you're ignoring the higher prices caused by the artificial scarcity imposed by the medallion system, and ignoring the cost / fee for of the medallion itself. Uber could absolutely return some of that to the user in the form of lower prices than traditional taxis; and keep some for itself, of course.
  - wpietri 9y ago
    If you're going to count that, you'll also have to figure out the costs for negative externalities like congestion, pollution, accidents, social services for drivers (health care, retirement, food stamps, etc), bankruptcies, and regulation. The medallion system had its issues, but there were reasons it existed. City after city decided it didn't want infinite unregulated taxis in circulation.
  - AndrewGaspar 9y ago
    Uber also has some efficiencies - its ability to pair customers and drivers makes robust taxi markets in a lot of places that wouldn't otherwise have them. (I honestly don't even know if my city has a traditional taxi company, but it definitely has Uber and Lyft)
    - 80386 9y ago
      I'd be surprised if it doesn't. I know someone who lived in West Virginia for a while. Before she got a car, she had to call a taxi to get to and from the grocery store. (To be fair, this was the eastern panhandle, which has the capital and the tourist attractions.)
- mgummelt 9y ago
  Self driving cars have massive network effects, just like any product dependent on machine learning. More users -> more data -> better product -> more users. It's the same reason Google is invulnerable in web search.
  - jgalt212 9y ago
    More users -> more data -> better product -> more users s/b More users -> more labeled data -> better product -> more users ML systems need lots of labeled data, not just lots of data. This is one of the primary why game playing AI's have had such great successes, tons of labeled data are relatively cheap. Great discourse on this and other related issues here: https://medium.com/@karpathy/alphago-in-context-c47718cb95a5 https://medium.com/@karpathy/alphago-in-context-c47718cb95a5
    - mgummelt 9y ago
      Supervised learning requires labels. Unsupervised doesn't. Self driving cars use elements of both. This is why companies like Cruise and Tesla are rushing to get basic self driving cars out there. They need driving data.
      - jgalt212 9y ago
        Fair enough. I guess I'm in the camp that unsupervised learning is of limited utility.
        jmalicki 9y ago
        You can get creative about labels. For instance, with known velocity of the car, predict where an object in view of the camera will be 5 frames in the future... This makes all data recorded by the camera effectively labeled, and is actually a useful thing to have.
        nl 9y ago
        Human input in normal cars with sensors provides supervision.
- woolvalley 9y ago
  Things like uber pool & friends is something that is hard to do efficiently as a dude with a few weeks. While airbnb is a fancy ecommerce website ;). "Airbnb is just a fancy ebay CRUD app for rooms, anybody can code that!"
- ggg9990 9y ago
  Having ridden in thousands of cabs, and hundreds of Ubers, calling Uber a “taxi company with an app” is like calling an airplane a car with a crossbeam.
  - walshemj 9y ago
    You must have some pretty poor apps - my local one doesn't even need an app. In the UK when I call my normal cab company it knows where my phone is and asks you to press 1 to book a cab to my location - I then get a SMS confirming the booking another when the cab is dispatched and one when it arrives
    - ggg9990 9y ago
      I have never used an app to call a taxi. I used taxis for decades, and when Uber came out it was such a night and day difference that I have taken exactly one taxi in the last five years, when my phone battery was dead.
allthenews 9y ago
So how do the "rest of us" profit from these IPOs?
- maxxxxx 9y ago
  I don't think these IPOs are designed to make profits for the rest of us.
  - adventured 9y ago
    That depends on what you're buying. Atlassian has tripled since the early days of its post IPO trading. Shopify is up 5-6 fold in two years. Square is up four fold in 2.x years. Baozun is up seven fold in 2.x years.
    - mistermann 9y ago
      I've thought for quite some time that rather than the broader overall market being allowed to participate in the possibility of crazy gains from technology startups, the rise of the VC financing model has resulted in the lion's share of gains (and losses) going to an elite group of well connected people, and once the easiest money is made, let the market have what's left over in a traditional IPO. As you point out, there are still some examples of fantastic returns, but considering how the world has been transformed by startups, I don't recall reading very many stories of individual investors getting in early and making a killing, but I do recall reading plenty of stories of startups (that obviously needed significant funding along the way) growing into multi-billion dollar enterprises.
      - sp527 9y ago
        Isn’t that just a long-winded way of saying that early investors, who take on more risk, earn superior returns? As for the barriers to the general public investing in risky startups, that’s a feature not a bug. Look no further than dotcom 1.0 or the present day ICO market to understand why.
baron816 9y ago
Let’s say the company you work for goes public and your stock is suddenly worth $1,000,000 (as an example). A wise investor, you normally put all of your other savings into broad market index funds. Now, do you sell your company’s stock that was given to you and took you four years to vest into, or do you hold on to it and hope the valuation keeps rising? (This is a rhetorical question btw)
- frisco 9y ago
  It’s not all or nothing. Selling 25% probably makes sense. Selling 100% probably doesn’t. The right balance depends on what % of your total net worth that $1M represents. I also think it highly depends on your answer to “how excited are you about the company’s roadmap for the next few years?” and “do you feel like you / the company have more to do on the topic?”
  - encoderer 9y ago
    Yes exactly. For somebody really looking to optimize, research Kelly criterion.
- zapita 9y ago
  The short version is: retain a competent wealth manager to advise you. EDIT: not all wealth managers are scam artists. If you suddenly earn lots of money and don't know what to do with it, find a professional paid by the hour to advise you. Do not listen to the people telling you that anyone charging you for advice is automatically a scammer. Also don't listen to people telling you that it's "not that hard" without any context on your experience and understanding of finance. They have nothing to lose by looking smart and confident on the internet while discussing your money. It depends on your overall net worth. If the stock represents the majority of your net worth, you might want to diversify across different types of assets - your newly introduced tech stock being on the high-risk end of that spectrum. If on the other hand you have "enough" of your savings in lower-risk assets, then it can make sense to keep all your stock.
  - frisco 9y ago
TACIXAT 9y ago
Pay walled on mobile.
elvirs 9y ago
something tells me all stars are aligning for a huge correction. real estate prices inflated beyond imaginable while wages bave been stagnant. almost a decade old tech companies not making any money valued in billions and an administration made up of moron wages war on issues that have no relation to the country. something tells me shit will collapse big time in Trump's last term and everything will be blamed on him and people who voted for him by the media and the elite. meanwhile the elite will have cashed in on all these ipos by having dumped overinflated stock of unicorns on middle class. 2020 will be a hell of a year
- ukulele 9y ago
  The only problem with the "something tells me" line of reasoning is that it's always being espoused by someone. Literally at any point you can find people who feel the way you do. Good news is that if you keep it up you'll eventually be right for a little while.
  - balls187 9y ago
    > Good news is that if you keep it up you'll eventually be right for a little while. A broken clock...
  - elvirs 9y ago
    good news is that is not something I keep up. Out of my 11 years ib reddit and however long here this is the first time I am saying out loud that there will be a correction in within a next year or two. to the broken clock guy, eat shit.
- icebraining 9y ago
  Do you mean term or year? 2020 will still be in Trump's first term.
lgleason 9y ago
Smells like a bubble....
hitchhiker999 9y ago
A fine day for corporate. http://www.connectnowbusinessnetwork.com/wp-content/uploads/5.jpg http://www.connectnowbusinessnetwork.com/wp-content/uploads/...
superplussed 9y ago
Will this result in appreciably more money flowing into the rest of the ecosystem from the people that are enriched turning into Angel investors? Or does that only happen with the massive IPOs like Microsoft, Google, et al?
walshemj 9y ago
Cashing out before the crash while the markets will still support IPO's
- rajacombinator 9y ago
  The big question - how much will they get for the vaporco known as uber?

144 points by raleighm 9y ago

There are some good and some not so good among these companies. Uber is a taxi company with an app. Cars still cost the same as before to run, drivers still cost the same as before, all costs are the same as before. So once the subsidization by VCs stops, Uber rides will be as expensive as any other ride. Self-driving cars will not save Uber either. There is no network effect with self-driving cars, and once the technology is ready it will be commoditized, and Uber will have no advantage. As a rider, it's great to use it while you can, but there is no actual business there. Airbnb on the there hand has all the advantages people like to see in a business.

posix_compliant 9y ago
I disagree. Uber facilitates the process of becoming a driver, therefore there will be a larger supply of drivers. I believe the price of a fare will decrease due to the increased competition.
- Retric 9y ago
  Amortization over say 20 fairs per day * 20 days a month * 12 months a year, reducing the cost by 1 cent per ride per ~50$ dollars in cost savings. Suggests it's just not a meaningful savings.
  - posix_compliant 9y ago
    Where are you getting the 1 cent reduction quantity? My only point was that a greater supply of drivers could yield a lower price, but I never asserted to what degree the price would decrease.
    - Retric 9y ago
      Increasing costs to add a driver does not prevent company's from adding new drivers it just makes that more expensive. Thus, you need to consider it as another form of cost savings not a difference in the number of drivers. A company that pays 50$ less to get an employee can reduce fairs on the order of 1 cent or make an extra 1 cent per ride. It's possible Uber might add a few cents per ride this way, but it's not particularly significant even assuming the average driver does not last that long.
- loeg 9y ago
  Also facilitates becoming a rider through ease of use/payment. And more riders, more revenue even with the same margins. The app is much smoother than the 2011-era cab experience — call a phone dispatcher, hope a cab shows up eventually. (Of course, Lyft provides exactly the same experience for consumers and even taxi companies are attempting to provide an app nowadays.)
- dbasedweeb 9y ago
  Has Uber stopped operating at a massive loss, subsidizing every ride with VC cash? Fares are already artificially and unsustainably depressed, and without Lvl 5 automation (clearly not incoming soon) the fares eventually have to rise. Those fares will rise even more as driver backlash against how little they’re paid increases with time.
BurningFrog 9y ago
My impression is that Uber is making money of the rides. It loses money on all its other research and investment schemes. I don't know if there are any actual facts out?
- Retric 9y ago
  No, "Uber passengers paid only 41% of the cost of their trips for the fiscal year ended in September 2015." Prices have not changed much since then, so they are a long way from break even. https://www.reuters.com/article/us-uber-profitability/true-price-of-an-uber-ride-in-question-as-investors-assess-firms-value-idUSKCN1B3103 https://www.reuters.com/article/us-uber-profitability/true-p...
  - wenttomarket 9y ago
    Prices haven’t changed much in the US but Uber has divested some of its most expensive investments around the world (China, Russia, APAC).
  - lathiat 9y ago
    That's assuming the only reason they paid that much of those trips was because of price. That's not true of how Uber operates. They do a lot of things like driver incentives (for being logged on a certain amount of time etc, or for signing up in the first place - a lot of this is during market setup for a given city), complete discounted rides based on new signups for riders, etc. You can assume as their penetration into the market saturates for both drivers and riders that both of these costs will diminish. A lot of people on Hacker News being US based also ignore the fact that Uber is highly international. I use it almost everywhere I travel for work, I think Malta was one of the few places they weren't. Lyft and similar competitors are mostly either US-specific or even city-specific. There is a lot of different economies in other regions to look at.
  - BurningFrog 9y ago
    I just don't get where the money goes if that's true. If I pay $10 for a ride, $7 goes to the driver, which covers all the cost for the car, gas, his wage etc. $3 goes to Uber. What marginal costs do the have for my ride that are anywhere close to that?
xsmasher 9y ago
Re: "all costs are the same as before" If you mean the same as running a Taxi, you're ignoring the higher prices caused by the artificial scarcity imposed by the medallion system, and ignoring the cost / fee for of the medallion itself. Uber could absolutely return some of that to the user in the form of lower prices than traditional taxis; and keep some for itself, of course.
- wpietri 9y ago
  If you're going to count that, you'll also have to figure out the costs for negative externalities like congestion, pollution, accidents, social services for drivers (health care, retirement, food stamps, etc), bankruptcies, and regulation. The medallion system had its issues, but there were reasons it existed. City after city decided it didn't want infinite unregulated taxis in circulation.
- AndrewGaspar 9y ago
  Uber also has some efficiencies - its ability to pair customers and drivers makes robust taxi markets in a lot of places that wouldn't otherwise have them. (I honestly don't even know if my city has a traditional taxi company, but it definitely has Uber and Lyft)
  - 80386 9y ago
    I'd be surprised if it doesn't. I know someone who lived in West Virginia for a while. Before she got a car, she had to call a taxi to get to and from the grocery store. (To be fair, this was the eastern panhandle, which has the capital and the tourist attractions.)
mgummelt 9y ago
Self driving cars have massive network effects, just like any product dependent on machine learning. More users -> more data -> better product -> more users. It's the same reason Google is invulnerable in web search.
- jgalt212 9y ago
  More users -> more data -> better product -> more users s/b More users -> more labeled data -> better product -> more users ML systems need lots of labeled data, not just lots of data. This is one of the primary why game playing AI's have had such great successes, tons of labeled data are relatively cheap. Great discourse on this and other related issues here: https://medium.com/@karpathy/alphago-in-context-c47718cb95a5 https://medium.com/@karpathy/alphago-in-context-c47718cb95a5
  - mgummelt 9y ago
    Supervised learning requires labels. Unsupervised doesn't. Self driving cars use elements of both. This is why companies like Cruise and Tesla are rushing to get basic self driving cars out there. They need driving data.
    - jgalt212 9y ago
      Fair enough. I guess I'm in the camp that unsupervised learning is of limited utility.
      - jmalicki 9y ago
        You can get creative about labels. For instance, with known velocity of the car, predict where an object in view of the camera will be 5 frames in the future... This makes all data recorded by the camera effectively labeled, and is actually a useful thing to have.
      - nl 9y ago
        Human input in normal cars with sensors provides supervision.
woolvalley 9y ago
Things like uber pool & friends is something that is hard to do efficiently as a dude with a few weeks. While airbnb is a fancy ecommerce website ;). "Airbnb is just a fancy ebay CRUD app for rooms, anybody can code that!"
ggg9990 9y ago
Having ridden in thousands of cabs, and hundreds of Ubers, calling Uber a “taxi company with an app” is like calling an airplane a car with a crossbeam.
- walshemj 9y ago
  You must have some pretty poor apps - my local one doesn't even need an app. In the UK when I call my normal cab company it knows where my phone is and asks you to press 1 to book a cab to my location - I then get a SMS confirming the booking another when the cab is dispatched and one when it arrives
  - ggg9990 9y ago
    I have never used an app to call a taxi. I used taxis for decades, and when Uber came out it was such a night and day difference that I have taken exactly one taxi in the last five years, when my phone battery was dead.

allthenews 9y ago

So how do the "rest of us" profit from these IPOs?

maxxxxx 9y ago
I don't think these IPOs are designed to make profits for the rest of us.
- adventured 9y ago
  That depends on what you're buying. Atlassian has tripled since the early days of its post IPO trading. Shopify is up 5-6 fold in two years. Square is up four fold in 2.x years. Baozun is up seven fold in 2.x years.
  - mistermann 9y ago
    I've thought for quite some time that rather than the broader overall market being allowed to participate in the possibility of crazy gains from technology startups, the rise of the VC financing model has resulted in the lion's share of gains (and losses) going to an elite group of well connected people, and once the easiest money is made, let the market have what's left over in a traditional IPO. As you point out, there are still some examples of fantastic returns, but considering how the world has been transformed by startups, I don't recall reading very many stories of individual investors getting in early and making a killing, but I do recall reading plenty of stories of startups (that obviously needed significant funding along the way) growing into multi-billion dollar enterprises.
    - sp527 9y ago
      Isn’t that just a long-winded way of saying that early investors, who take on more risk, earn superior returns? As for the barriers to the general public investing in risky startups, that’s a feature not a bug. Look no further than dotcom 1.0 or the present day ICO market to understand why.

baron816 9y ago

Let’s say the company you work for goes public and your stock is suddenly worth $1,000,000 (as an example). A wise investor, you normally put all of your other savings into broad market index funds. Now, do you sell your company’s stock that was given to you and took you four years to vest into, or do you hold on to it and hope the valuation keeps rising? (This is a rhetorical question btw)

frisco 9y ago
It’s not all or nothing. Selling 25% probably makes sense. Selling 100% probably doesn’t. The right balance depends on what % of your total net worth that $1M represents. I also think it highly depends on your answer to “how excited are you about the company’s roadmap for the next few years?” and “do you feel like you / the company have more to do on the topic?”
- encoderer 9y ago
  Yes exactly. For somebody really looking to optimize, research Kelly criterion.
zapita 9y ago
The short version is: retain a competent wealth manager to advise you. EDIT: not all wealth managers are scam artists. If you suddenly earn lots of money and don't know what to do with it, find a professional paid by the hour to advise you. Do not listen to the people telling you that anyone charging you for advice is automatically a scammer. Also don't listen to people telling you that it's "not that hard" without any context on your experience and understanding of finance. They have nothing to lose by looking smart and confident on the internet while discussing your money. It depends on your overall net worth. If the stock represents the majority of your net worth, you might want to diversify across different types of assets - your newly introduced tech stock being on the high-risk end of that spectrum. If on the other hand you have "enough" of your savings in lower-risk assets, then it can make sense to keep all your stock.
- frisco 9y ago

TACIXAT 9y ago

Pay walled on mobile.

elvirs 9y ago

something tells me all stars are aligning for a huge correction. real estate prices inflated beyond imaginable while wages bave been stagnant. almost a decade old tech companies not making any money valued in billions and an administration made up of moron wages war on issues that have no relation to the country. something tells me shit will collapse big time in Trump's last term and everything will be blamed on him and people who voted for him by the media and the elite. meanwhile the elite will have cashed in on all these ipos by having dumped overinflated stock of unicorns on middle class. 2020 will be a hell of a year

ukulele 9y ago
The only problem with the "something tells me" line of reasoning is that it's always being espoused by someone. Literally at any point you can find people who feel the way you do. Good news is that if you keep it up you'll eventually be right for a little while.
- balls187 9y ago
  > Good news is that if you keep it up you'll eventually be right for a little while. A broken clock...
- elvirs 9y ago
  good news is that is not something I keep up. Out of my 11 years ib reddit and however long here this is the first time I am saying out loud that there will be a correction in within a next year or two. to the broken clock guy, eat shit.
icebraining 9y ago
Do you mean term or year? 2020 will still be in Trump's first term.

lgleason 9y ago

Smells like a bubble....

hitchhiker999 9y ago

A fine day for corporate. http://www.connectnowbusinessnetwork.com/wp-content/uploads/5.jpg http://www.connectnowbusinessnetwork.com/wp-content/uploads/...

superplussed 9y ago

Will this result in appreciably more money flowing into the rest of the ecosystem from the people that are enriched turning into Angel investors? Or does that only happen with the massive IPOs like Microsoft, Google, et al?

walshemj 9y ago

Cashing out before the crash while the markets will still support IPO's

rajacombinator 9y ago
The big question - how much will they get for the vaporco known as uber?