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> 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

> 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 of a company that seems destined to fail. If your unit economics don't work then you're fucked, and even if you raise literally tens of billions of dollars you will eventually run out of money. And yet companies like these are held up as prime examples of unicorn success stories. It's not just Uber - there are serious problems with many of the most acclaimed startups. Obviously not all startups are terrible, but as someone who isn't a VC (but once considered becoming one), I think tech investors are unable to see their bias for just how awful most tech companies today are.

blakesterz 4y ago
I was there in 2000, and we all thought those tech companies were real businesses! Most of today’s tech companies don't really look all that much different.
- bshipp 4y ago
  I read this line and wondered what really has changed in the past 20 years? "In 2000, the Nasdaq superheated due to the large number of companies that skyrocketed into the public markets fueled by fanciful metrics disengaged from revenue." Interest rates have been held around zero since almost the dot com crash and certainly since 2008. No wonder VCs were given gobs of cash to try and eek out a better market return. The injection of cash on Wall Street resulted in huge amounts ending up in the stock market, perpetuating those returns once they went public and encouraging more VC activity. Is there any realistic forecasted revenue stream that justifies the valuations of some of these companies? Some good companies and good prospects are going to get lost when this monetary bubble bursts. It's a shame, but inevitable considering how long the Fed has been holding their finger on the scale.
  - upupandup 4y ago
    it's also interesting to see the impact of cheap capital on software development trends. for instance to reproduce the same SEO server-rendered site we had pre-2008, we have increase in complexity and costs. Applications and websites that should be more than fine to be rendered on MVC frameworks are now sending several megabytes of javascript down the wire, as a result our devices have more memories, more computing power, thereby consuming more energy than ever before contributing to the growing global warming crisis that we are only beginning to witness now. Coupled with lobbying for not regulating personal data in databases connected to the internet thereby allowing a select few giants to essentially act both as cartels to monopolize the arbitrage of the data of everyone on earth. The labor market are also controlled as a result of this monopoly, it feels like the best version of state sanctioned businesses: self-sufficient on its own while gathering data on everyone as the price of privacy is artifically suppressed.
- excitom 4y ago
  pets.com, webvan, drkoop, kozmo, garden.com ... ah, the memories.
  - chromaton 4y ago
    A lot of them were just early. pets.com => Chewy. Also PetSmart operates the pets.com domain now apparently. webvan => Amazon Fresh, Instacart kozmo => DoorDash, Uber Eats, etc.
    - dinvlad 4y ago
      Mind => blown. There are very few original ideas, it seems. Just slightly better execution maybe.
      - kirse 4y ago
        Mobile devices, ubiquitous 4G comms, GPS location-based services. Underlying tech is always what enables "too early" products to succeed later on, particularly comms bandwidth. The same fundamental products have been reinvented with every improvement in bandwidth since the beginning of the internet. Once you've seen these cycles happen over and over you just watch for the underlying tech improvements, pick an idea lane and re-execute. Keep an eye on 5G and Starlink, it's already happening.
- geoffjentry 4y ago
  Not only that, but it wasn't even the largest issue. People point at pimentoloaf.com or whatever and laugh. But when those companies went under, they took away real dollars from "real" B2B companies. And then when those companies went under, "real" companies who depended on them went under. And so on.
- powerhour 4y ago
  I was there too and I remember a distinct malaise about pointless tech companies that would make up for per customer losses with scale. There were a lot of companies whose only product was eyeballs for advertisers. (Ok, that part is the same.)
ceejayoz 4y ago
Uber's a VC success story because the VCs managed to realize their profits before it can collapse when it went IPO.
- upupandup 4y ago
  They were lucky to find a whale like Masayoshi to dump their shares but seems the equivalent of bragging about how you got rich in the early phases of a ponzi scheme with the losers holding bags.
dubswithus 4y ago
Very good points MegaButts. Crypto is VC funded too. Hence the crazy market caps because most of the VC owned supply is locked up.
- dubswithus 4y ago
  - dang 4y ago
    If you'd please review the site guidelines and not post like this, we'd be grateful. https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html
    - dubswithus 4y ago
      - deleted 4y ago
        [deleted]
thr0wawayf00 4y ago
The problem is that sustainability was never the goal to begin with. The goal was to generate enough hype around a product in order to go public or get acquired by someone else. It's the rich people's version of "hodling". Just like crypto-holders that created lots of hype around various coins and whatnot, VCs just bought stakes in lots of different companies hoping that one of them would go to the moon.
skippyboxedhero 4y ago
> I think tech investors are unable to see their bias for just how awful most tech companies today are I agree. Ecomm broke first in other markets, and I am seeing profitable ecomm companies still having to raise capital. Uber is one of the worst ones (they took a business that is very profitable, and lost absolutely staggering amounts of money, they probably need to cut 50% of the workforce to start with, and then keep doing 50% until the business finds a level) but there are many others that have no business model or route to profit...and these are the best of the best that managed to actually list. The public ones have a route to survival, some will raise, a lot of expense will go away with the stock price collapsing (employees getting bailed in). But most private ones won't survive. Too many staff, too little cash generation, and too reliant on the kindness of strangers (who remembers a few years ago, IPOs were so unfashionable, very old money...lol). It is probably worse than 2000, the sector is much larger, private markets are far larger, there is so much hot money in the hands of brainless investors, it is a recipe for disaster. It is also worth saying, there will be a reprieve for a few months, then a story will break about one of the largest companies filing for bankruptcy overnight, then the private marks will come in. The losses sustained already have been some of the largest in the history of capital markets, it is the first inning.
- vcfundedmylife 4y ago
  I agree, crypto and fintech will be the first dominos to fall - they’re in free fall already. There’s a lot of copycat B2B startups that extremely dependent on crypto and fintech for their revenue. They will be the next domino to fall. After that, it would be infrastructure, security, and analytics vendors that will face a revenue crunch and will be unable to raise another round of funding. And then, all the startups for startups vendors like Rippling and Brex. And the final domino would be currently well funded private companies such as Airtable, Notion, Loom, and possibly even Figma. We’ll learn that none of these products had any significant traction outside of VC-land. This would be even worse for the Bay Area than 2000. Remote work is still the norm here (I’m typing this on my lunch break in my nearly empty SF office). An economic downturn coupled with destigmatized remote work is an environment ripe for outsourcing.
  - 4y ago
dahdum 4y ago
> I mean if we really look at some of the business models for these companies, they're clearly unsustainable. Uber is a prime example of a company that seems destined to fail. Lyft and Uber are both very near profitability and things are looking pretty good for them over the next couple years. Why do you believe they are destined to fail? Established markets have been profitable for a while.
- christkv 4y ago
  In a recession they provide a luxury good that might be down prioritized by customers to save money.
  - PeterisP 4y ago
    In a recession some people suddenly are eager for any job, no matter how bad, driving down Uber's "cost of goods sold" i.e. driver fees.. But in general economic downturns are tricky, as they affect different groups differently - are the people who would suffer in a recession the same people who are currently using Uber?
    - vkou 4y ago
      Driver fees are already so low that between depreciation, gas, and your time, you're barely making ends meet driving. They can't squeeze the drivers any further, unless they only want people to be driving 15-year-old beaters.
      - missedthecue 4y ago
        Boy, this is an evergreen narrative on HN, but I don't really think it's true. The total all-in cost of a Prius (depreciation, maintenance, gasoline, etc...) is about 30 cents per mile. Uber drivers make about $1-$2 per mile which is a pretty big margin. Uber has been around for over 10 years now. Sure, not everyone is an accountant, but if Uber drained every driver's wallet, they'd have noticed by now. Interesting that it's usually only people who have never driven for Uber that claim it's completely unprofitable.
echelon 4y ago
> How many of today's startups are just servicing each other with VC money? The B2B SaaS ones.
lmeyerov 4y ago
My bigger uneasy feeling here is the advertising/marketing world where ROI basics like attribution are highly questionable and bohemeths like Apple & Google are using their $T war chests & monopoly positions to cripple the sales/marketing ecosystems of their competitors. So risks a repeat of the dotcom bubble collapse when cpm/cpc collapsed. So much of saas is directly serving these questionable areas, and in turn, more neutral b2b (data, ...) is in turn powering those and thus also fragile. Variable sales+marketing spend is easy to scale back on during a recession. We've seen preeemptive layoffs due to valuation drops, but not this stuff yet. It's hard to handle. Our team largely focused on helping enterprise/gov/etc customers (think visibility/ai for core fraud, cyber, supply chain operations) and prioritized more self-serve etc for the crypto markets: they came to us with similar questions, but had way more risk, and so luckily we're seeing only a bit of churn right now. But if/when the sales/marketing/etc. collapses hit, that'll be much harder to avoid for many people.
- Supermancho 4y ago
  > Apple & Google are using their $T war chests & monopoly positions to cripple the sales/marketing ecosystems of their competitors. To be fair, they are doing so by forcing competitors to in-house their advertising efforts. Largely, AdTech in large companies is outsourced to 3rd parties and those existing workflows calcify into positive signal. There hasn't been much incentive to change. Recently, the belts are starting to tighten and network (public market) adtech companies, even with big accounts, are always in danger of disappearing overnight. Many companies rather continue with the few winners in the network adtech space, than engage in the lengthy and risky in-house development. It's slow to see all of the parallel development efforts coming to fruition, when no company wants to make PR announcements that it's no longer sending customer data to a 3rd party, but still collecting it all the same for an internal platform. This migration is happening nonetheless. Amazon built out their platform in under 2 years and the ripple has pushed many others forward toward dogfooding their own adtech stacks.
throwk8s 4y ago
> 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 from investors to customers, then get out of the way. Companies that work too well can become an inescapable force.
- ruined 4y ago
  eventually, their business becomes politics. see: unionization, windfall tax, the nascent antisurveillance backlash, ftc action... once your business becomes everyone's business, they'll just go ahead and make decisions about it without you
- gumby 4y ago
  > Companies whose unit economics don't work transfer wealth from investors to customers, then get out of the way. Not always. Consider the rash of subsidized “we’ll pick up your dry cleaning and then save by doing the work at a centralized facility elsewhere). These parasites wiped out the network of local dry cleaners, in particular in SF. You could say, well, they wiped out the buggy whip makers. But actually they wiped out the infrastructure and then went bust, leaving a desert (in dry cleaning terms) behind. Parasite is too kind a word.
  - closewith 4y ago
    > Consider the rash of subsidized “we’ll pick up your dry cleaning and then save by doing the work at a centralized facility elsewhere). Is that not the default business model of dry cleaners globally? Chemicals like PERC are nearly completely banned in residential/commercial zones. Almost all dry cleaning in the developed world is done in centralised depots in industrial areas, for health & safety reasons.
    - HWR_14 4y ago
marcosdumay 4y ago
> If your unit economics don't work then you're fucked, and even if you raise literally tens of billions of dollars you will eventually run out of money. Hum... VCs exist exactly because this is not a general truth. It's true for Uber, but there are many sectors where unit economics change with scale.
time_to_smile 4y ago
> I think tech investors are unable to see their bias for just how awful most tech companies today are. I think investors are more greedy than stupid. When money was essentially free, weirder and weirder investments make sense. If the world was crazy and throwing money around, why not fund a bunch of ridiculous companies with the knowledge that you can very likely unload that risk on the public when the company ipos. And we're seeing that that logic is correct. Just look at the record numbers of IPOs that were happening right before the market started to collapse [0]. Investors know they are playing musical chairs, but they're playing with the public and the know they song quite well and can tell when the music is winding down. Now IPO'd companies that don't know how to make a profit are the public shareholders problem, not private VCs. 0. https://stockanalysis.com/ipos/statistics/ https://stockanalysis.com/ipos/statistics/
elforce002 4y ago
Uber is the prime example of get out while you're ahead. The founders cashed in and let the the $@#& pile to the rest. The camel concept is gaining traction since they focus on profitability from the get go, healthy runway and steadily grow.
fairity 4y ago
> Uber is a prime example of a company that seems destined to fail. If your unit economics don't work then you're fucked Have you actually studied Uber’s recent earnings? I’m pretty sure rideshate contribution margin is positive in all their tenured markets.
gumby 4y ago
> How many of today's startups are just servicing each other with VC money? IMHO this is mostly the a phenomenon of the SAAS/platform space. Those practices don’t really apply to more traditional businesses (including high tech ones). But you made me think of something else: this phenomenon was definitely booming in the 2000 crash, when net-related hardware companies were underwriting their own sales, which ended quite poorly. Not only is the subsidization you point out happening elsewhere, but hardly anyone buys much “networking gear” any more. From crucial, enabling tech to boring infrastructure in what, 15 years?
- upupandup 4y ago
  Isn't this what YC does essentially? YC backed SaaS companies buy each others products, write favorable case studies and use that to convince other enterprises to buy in, and to IPO quickly they raise lot of money to have the market share that commands the multi billion valuations with insane revenue multiples? Seems like this model is beginning to fail, most YC backed IPOs are now trading in deep red. ex) coinbase edit: lurkervizzle I can't respond to you since im throttled but this is what I wrote in response to add on to what you wrote in the other comment this is far more serious than I thought I seemingly just made the connection that YC backed SaaS (or any other accelerator schemes) were essentially just writing cheques to each other and playing whack a mole: You direct your cohort members to send cheques to one SaaS, raise series B & C, push for IPO after making splashes on media outlets (also owned and controlled by stakeholders), which in turn generates more fervor from retail investors eager to get in on the "next" Facebook. Then you would naturally use these beacons to essentially send more cheques, this time across many tiny bets that they can cycle through one after the other. Some make it to IPO, many don't so they get "acquired". The more I look at the YC business model and silicon valley in general is that very small group of people are actually in it to build sustainable businesses, since the Uber secondary market successes of VCs that successfully dumped their shares on Masayoshi, the SaaS have become the new "social media opex", where losing $2 to make $1 is preferred over slower growing but consistent net profit generating ones. By next year I anticipate ton of pain and anger. I took a look at some TC figures and they are roughly 30/70 mix of cash and RSUs. Many of those people are also in debt through real estate using HELOCs too. What I think we are headed for is something unprecedented because there are 3 major bubbles imploding: crypto, real estate, dot com Even more crazy is that we had the exact setup going into the new millenia: e-gold, real estate, dot com but the difference back then was that monetary supply was nowhere near as low as they have been in the past 3 years (take a look at the M2 supply/velocity chart). https://www.pennmutualam.com/market-insights-news/blogs/chart-of-the-week/2020-10-22-what-money-velocity-means-for-us-economic-recovery/_res/id=Picture/money.png https://www.pennmutualam.com/market-insights-news/blogs/char...
turns0ut 4y ago
How many times has Detroit, housing, and finance been bailed out? They’re all operating on magical money because money is a shared hallucination. They legalize bailouts and complain about the debt but never mention the future can just say, eh, fuck those dead peoples bullshit. The bias you seem to not realize you’re hung up on is society looks nothing like it did 100 years ago. In another 100 they won’t give a fuck about any of this. If we take away the money, people still need to do shit if they want to survive. Fuck their money, do weird shit. Let the olds take it to the grave.
TfyD3eYNen4XhbN 4y ago
It seems to me the VCs probably made quite a bit of money from Uber's IPO, no? Especially before their stock price halved itself (LOL).
cpursley 4y ago
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.
- dmix 4y ago
  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).
  - cpursley 4y ago
    $5+ gallon gasoline is a significant change for the normies budget. Especially with layoff clouds hovering above.
kypro 4y ago
> 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 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. 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 imo, and that's where I have problems with it as an investment. I think as an investment it's more likely to end up like a Twitter or Snapchat. They'll make a bit of money and as a company they'll be fine, but I doubt they'll ever reach the levels of profitability that other big tech companies have achieved. The stock seems likely to trade fairly flat as they continue to see decent demand for their product, but continue to struggle to achieve significant profitability. I'd argue taxi hailing apps (as they currently exist) are basically commodities. There's no real difference in experience between the different apps and if I'm being made to pay then I'll just pick the cheapest. Only if they're all pricing around the same will I use Uber and that's just because I know I can trust them and there's a friction in downloading and signing up for something else. They have a viable business, but very little operating leverage.
- buu700 4y ago
  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.
vaidhy 4y ago
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.
baby 4y ago
I have a hard time picturing uber failing. I take uber all the time, all my friends do as well, how can it fail?
- saurik 4y ago
  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".
  - baby 4y ago
    With the amount of money that went into expanding and growing as fast as possible I can imagine why they have not been profitable
JakeAl 4y ago
This. Now do government contractors!

blakesterz 4y ago

I was there in 2000, and we all thought those tech companies were real businesses! Most of today’s tech companies don't really look all that much different.

bshipp 4y ago
I read this line and wondered what really has changed in the past 20 years? "In 2000, the Nasdaq superheated due to the large number of companies that skyrocketed into the public markets fueled by fanciful metrics disengaged from revenue." Interest rates have been held around zero since almost the dot com crash and certainly since 2008. No wonder VCs were given gobs of cash to try and eek out a better market return. The injection of cash on Wall Street resulted in huge amounts ending up in the stock market, perpetuating those returns once they went public and encouraging more VC activity. Is there any realistic forecasted revenue stream that justifies the valuations of some of these companies? Some good companies and good prospects are going to get lost when this monetary bubble bursts. It's a shame, but inevitable considering how long the Fed has been holding their finger on the scale.
- upupandup 4y ago
  it's also interesting to see the impact of cheap capital on software development trends. for instance to reproduce the same SEO server-rendered site we had pre-2008, we have increase in complexity and costs. Applications and websites that should be more than fine to be rendered on MVC frameworks are now sending several megabytes of javascript down the wire, as a result our devices have more memories, more computing power, thereby consuming more energy than ever before contributing to the growing global warming crisis that we are only beginning to witness now. Coupled with lobbying for not regulating personal data in databases connected to the internet thereby allowing a select few giants to essentially act both as cartels to monopolize the arbitrage of the data of everyone on earth. The labor market are also controlled as a result of this monopoly, it feels like the best version of state sanctioned businesses: self-sufficient on its own while gathering data on everyone as the price of privacy is artifically suppressed.
excitom 4y ago
pets.com, webvan, drkoop, kozmo, garden.com ... ah, the memories.
- chromaton 4y ago
  A lot of them were just early. pets.com => Chewy. Also PetSmart operates the pets.com domain now apparently. webvan => Amazon Fresh, Instacart kozmo => DoorDash, Uber Eats, etc.
  - dinvlad 4y ago
    Mind => blown. There are very few original ideas, it seems. Just slightly better execution maybe.
    - kirse 4y ago
      Mobile devices, ubiquitous 4G comms, GPS location-based services. Underlying tech is always what enables "too early" products to succeed later on, particularly comms bandwidth. The same fundamental products have been reinvented with every improvement in bandwidth since the beginning of the internet. Once you've seen these cycles happen over and over you just watch for the underlying tech improvements, pick an idea lane and re-execute. Keep an eye on 5G and Starlink, it's already happening.
geoffjentry 4y ago
Not only that, but it wasn't even the largest issue. People point at pimentoloaf.com or whatever and laugh. But when those companies went under, they took away real dollars from "real" B2B companies. And then when those companies went under, "real" companies who depended on them went under. And so on.
powerhour 4y ago
I was there too and I remember a distinct malaise about pointless tech companies that would make up for per customer losses with scale. There were a lot of companies whose only product was eyeballs for advertisers. (Ok, that part is the same.)

ceejayoz 4y ago

Uber's a VC success story because the VCs managed to realize their profits before it can collapse when it went IPO.

upupandup 4y ago
They were lucky to find a whale like Masayoshi to dump their shares but seems the equivalent of bragging about how you got rich in the early phases of a ponzi scheme with the losers holding bags.

dubswithus 4y ago

Very good points MegaButts. Crypto is VC funded too. Hence the crazy market caps because most of the VC owned supply is locked up.

dubswithus 4y ago
- dang 4y ago
  If you'd please review the site guidelines and not post like this, we'd be grateful. https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html
  - dubswithus 4y ago
    - deleted 4y ago
      [deleted]

thr0wawayf00 4y ago

The problem is that sustainability was never the goal to begin with. The goal was to generate enough hype around a product in order to go public or get acquired by someone else. It's the rich people's version of "hodling". Just like crypto-holders that created lots of hype around various coins and whatnot, VCs just bought stakes in lots of different companies hoping that one of them would go to the moon.

skippyboxedhero 4y ago

> I think tech investors are unable to see their bias for just how awful most tech companies today are I agree. Ecomm broke first in other markets, and I am seeing profitable ecomm companies still having to raise capital. Uber is one of the worst ones (they took a business that is very profitable, and lost absolutely staggering amounts of money, they probably need to cut 50% of the workforce to start with, and then keep doing 50% until the business finds a level) but there are many others that have no business model or route to profit...and these are the best of the best that managed to actually list. The public ones have a route to survival, some will raise, a lot of expense will go away with the stock price collapsing (employees getting bailed in). But most private ones won't survive. Too many staff, too little cash generation, and too reliant on the kindness of strangers (who remembers a few years ago, IPOs were so unfashionable, very old money...lol). It is probably worse than 2000, the sector is much larger, private markets are far larger, there is so much hot money in the hands of brainless investors, it is a recipe for disaster. It is also worth saying, there will be a reprieve for a few months, then a story will break about one of the largest companies filing for bankruptcy overnight, then the private marks will come in. The losses sustained already have been some of the largest in the history of capital markets, it is the first inning.

vcfundedmylife 4y ago
I agree, crypto and fintech will be the first dominos to fall - they’re in free fall already. There’s a lot of copycat B2B startups that extremely dependent on crypto and fintech for their revenue. They will be the next domino to fall. After that, it would be infrastructure, security, and analytics vendors that will face a revenue crunch and will be unable to raise another round of funding. And then, all the startups for startups vendors like Rippling and Brex. And the final domino would be currently well funded private companies such as Airtable, Notion, Loom, and possibly even Figma. We’ll learn that none of these products had any significant traction outside of VC-land. This would be even worse for the Bay Area than 2000. Remote work is still the norm here (I’m typing this on my lunch break in my nearly empty SF office). An economic downturn coupled with destigmatized remote work is an environment ripe for outsourcing.
- 4y ago

dahdum 4y ago

> I mean if we really look at some of the business models for these companies, they're clearly unsustainable. Uber is a prime example of a company that seems destined to fail. Lyft and Uber are both very near profitability and things are looking pretty good for them over the next couple years. Why do you believe they are destined to fail? Established markets have been profitable for a while.

christkv 4y ago
In a recession they provide a luxury good that might be down prioritized by customers to save money.
- PeterisP 4y ago
  In a recession some people suddenly are eager for any job, no matter how bad, driving down Uber's "cost of goods sold" i.e. driver fees.. But in general economic downturns are tricky, as they affect different groups differently - are the people who would suffer in a recession the same people who are currently using Uber?
  - vkou 4y ago
    Driver fees are already so low that between depreciation, gas, and your time, you're barely making ends meet driving. They can't squeeze the drivers any further, unless they only want people to be driving 15-year-old beaters.
    - missedthecue 4y ago
      Boy, this is an evergreen narrative on HN, but I don't really think it's true. The total all-in cost of a Prius (depreciation, maintenance, gasoline, etc...) is about 30 cents per mile. Uber drivers make about $1-$2 per mile which is a pretty big margin. Uber has been around for over 10 years now. Sure, not everyone is an accountant, but if Uber drained every driver's wallet, they'd have noticed by now. Interesting that it's usually only people who have never driven for Uber that claim it's completely unprofitable.

echelon 4y ago

> How many of today's startups are just servicing each other with VC money? The B2B SaaS ones.

lmeyerov 4y ago

My bigger uneasy feeling here is the advertising/marketing world where ROI basics like attribution are highly questionable and bohemeths like Apple & Google are using their $T war chests & monopoly positions to cripple the sales/marketing ecosystems of their competitors. So risks a repeat of the dotcom bubble collapse when cpm/cpc collapsed. So much of saas is directly serving these questionable areas, and in turn, more neutral b2b (data, ...) is in turn powering those and thus also fragile. Variable sales+marketing spend is easy to scale back on during a recession. We've seen preeemptive layoffs due to valuation drops, but not this stuff yet. It's hard to handle. Our team largely focused on helping enterprise/gov/etc customers (think visibility/ai for core fraud, cyber, supply chain operations) and prioritized more self-serve etc for the crypto markets: they came to us with similar questions, but had way more risk, and so luckily we're seeing only a bit of churn right now. But if/when the sales/marketing/etc. collapses hit, that'll be much harder to avoid for many people.

Supermancho 4y ago
> Apple & Google are using their $T war chests & monopoly positions to cripple the sales/marketing ecosystems of their competitors. To be fair, they are doing so by forcing competitors to in-house their advertising efforts. Largely, AdTech in large companies is outsourced to 3rd parties and those existing workflows calcify into positive signal. There hasn't been much incentive to change. Recently, the belts are starting to tighten and network (public market) adtech companies, even with big accounts, are always in danger of disappearing overnight. Many companies rather continue with the few winners in the network adtech space, than engage in the lengthy and risky in-house development. It's slow to see all of the parallel development efforts coming to fruition, when no company wants to make PR announcements that it's no longer sending customer data to a 3rd party, but still collecting it all the same for an internal platform. This migration is happening nonetheless. Amazon built out their platform in under 2 years and the ripple has pushed many others forward toward dogfooding their own adtech stacks.

throwk8s 4y ago

> 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 from investors to customers, then get out of the way. Companies that work too well can become an inescapable force.

ruined 4y ago
eventually, their business becomes politics. see: unionization, windfall tax, the nascent antisurveillance backlash, ftc action... once your business becomes everyone's business, they'll just go ahead and make decisions about it without you
gumby 4y ago
> Companies whose unit economics don't work transfer wealth from investors to customers, then get out of the way. Not always. Consider the rash of subsidized “we’ll pick up your dry cleaning and then save by doing the work at a centralized facility elsewhere). These parasites wiped out the network of local dry cleaners, in particular in SF. You could say, well, they wiped out the buggy whip makers. But actually they wiped out the infrastructure and then went bust, leaving a desert (in dry cleaning terms) behind. Parasite is too kind a word.
- closewith 4y ago
  > Consider the rash of subsidized “we’ll pick up your dry cleaning and then save by doing the work at a centralized facility elsewhere). Is that not the default business model of dry cleaners globally? Chemicals like PERC are nearly completely banned in residential/commercial zones. Almost all dry cleaning in the developed world is done in centralised depots in industrial areas, for health & safety reasons.
  - HWR_14 4y ago

marcosdumay 4y ago

> If your unit economics don't work then you're fucked, and even if you raise literally tens of billions of dollars you will eventually run out of money. Hum... VCs exist exactly because this is not a general truth. It's true for Uber, but there are many sectors where unit economics change with scale.

time_to_smile 4y ago

> I think tech investors are unable to see their bias for just how awful most tech companies today are. I think investors are more greedy than stupid. When money was essentially free, weirder and weirder investments make sense. If the world was crazy and throwing money around, why not fund a bunch of ridiculous companies with the knowledge that you can very likely unload that risk on the public when the company ipos. And we're seeing that that logic is correct. Just look at the record numbers of IPOs that were happening right before the market started to collapse [0]. Investors know they are playing musical chairs, but they're playing with the public and the know they song quite well and can tell when the music is winding down. Now IPO'd companies that don't know how to make a profit are the public shareholders problem, not private VCs. 0. https://stockanalysis.com/ipos/statistics/ https://stockanalysis.com/ipos/statistics/

elforce002 4y ago

Uber is the prime example of get out while you're ahead. The founders cashed in and let the the $@#& pile to the rest. The camel concept is gaining traction since they focus on profitability from the get go, healthy runway and steadily grow.

fairity 4y ago

> Uber is a prime example of a company that seems destined to fail. If your unit economics don't work then you're fucked Have you actually studied Uber’s recent earnings? I’m pretty sure rideshate contribution margin is positive in all their tenured markets.

gumby 4y ago

> How many of today's startups are just servicing each other with VC money? IMHO this is mostly the a phenomenon of the SAAS/platform space. Those practices don’t really apply to more traditional businesses (including high tech ones). But you made me think of something else: this phenomenon was definitely booming in the 2000 crash, when net-related hardware companies were underwriting their own sales, which ended quite poorly. Not only is the subsidization you point out happening elsewhere, but hardly anyone buys much “networking gear” any more. From crucial, enabling tech to boring infrastructure in what, 15 years?

upupandup 4y ago
Isn't this what YC does essentially? YC backed SaaS companies buy each others products, write favorable case studies and use that to convince other enterprises to buy in, and to IPO quickly they raise lot of money to have the market share that commands the multi billion valuations with insane revenue multiples? Seems like this model is beginning to fail, most YC backed IPOs are now trading in deep red. ex) coinbase edit: lurkervizzle I can't respond to you since im throttled but this is what I wrote in response to add on to what you wrote in the other comment this is far more serious than I thought I seemingly just made the connection that YC backed SaaS (or any other accelerator schemes) were essentially just writing cheques to each other and playing whack a mole: You direct your cohort members to send cheques to one SaaS, raise series B & C, push for IPO after making splashes on media outlets (also owned and controlled by stakeholders), which in turn generates more fervor from retail investors eager to get in on the "next" Facebook. Then you would naturally use these beacons to essentially send more cheques, this time across many tiny bets that they can cycle through one after the other. Some make it to IPO, many don't so they get "acquired". The more I look at the YC business model and silicon valley in general is that very small group of people are actually in it to build sustainable businesses, since the Uber secondary market successes of VCs that successfully dumped their shares on Masayoshi, the SaaS have become the new "social media opex", where losing $2 to make $1 is preferred over slower growing but consistent net profit generating ones. By next year I anticipate ton of pain and anger. I took a look at some TC figures and they are roughly 30/70 mix of cash and RSUs. Many of those people are also in debt through real estate using HELOCs too. What I think we are headed for is something unprecedented because there are 3 major bubbles imploding: crypto, real estate, dot com Even more crazy is that we had the exact setup going into the new millenia: e-gold, real estate, dot com but the difference back then was that monetary supply was nowhere near as low as they have been in the past 3 years (take a look at the M2 supply/velocity chart). https://www.pennmutualam.com/market-insights-news/blogs/chart-of-the-week/2020-10-22-what-money-velocity-means-for-us-economic-recovery/_res/id=Picture/money.png https://www.pennmutualam.com/market-insights-news/blogs/char...

turns0ut 4y ago

How many times has Detroit, housing, and finance been bailed out? They’re all operating on magical money because money is a shared hallucination. They legalize bailouts and complain about the debt but never mention the future can just say, eh, fuck those dead peoples bullshit. The bias you seem to not realize you’re hung up on is society looks nothing like it did 100 years ago. In another 100 they won’t give a fuck about any of this. If we take away the money, people still need to do shit if they want to survive. Fuck their money, do weird shit. Let the olds take it to the grave.

TfyD3eYNen4XhbN 4y ago

It seems to me the VCs probably made quite a bit of money from Uber's IPO, no? Especially before their stock price halved itself (LOL).

cpursley 4y ago

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.

dmix 4y ago
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).
- cpursley 4y ago
  $5+ gallon gasoline is a significant change for the normies budget. Especially with layoff clouds hovering above.

kypro 4y ago

> 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 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. 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 imo, and that's where I have problems with it as an investment. I think as an investment it's more likely to end up like a Twitter or Snapchat. They'll make a bit of money and as a company they'll be fine, but I doubt they'll ever reach the levels of profitability that other big tech companies have achieved. The stock seems likely to trade fairly flat as they continue to see decent demand for their product, but continue to struggle to achieve significant profitability. I'd argue taxi hailing apps (as they currently exist) are basically commodities. There's no real difference in experience between the different apps and if I'm being made to pay then I'll just pick the cheapest. Only if they're all pricing around the same will I use Uber and that's just because I know I can trust them and there's a friction in downloading and signing up for something else. They have a viable business, but very little operating leverage.

buu700 4y ago
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.

vaidhy 4y ago

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.

baby 4y ago

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

saurik 4y ago
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".
- baby 4y ago
  With the amount of money that went into expanding and growing as fast as possible I can imagine why they have not been profitable

JakeAl 4y ago

This. Now do government contractors!