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Normally I despise defending VCs, but: First, I think a lot of people fundamentally misunderstand the mandate of VCs. The firms themselves receive funding from

Normally I despise defending VCs, but: First, I think a lot of people fundamentally misunderstand the mandate of VCs. The firms themselves receive funding from limited partners, who are often very large pools like the California State Pension or Yale University. Those pools are almost all deployed into very low-risk asset classes, like bonds. A very small amount, say like 2-3% is invested in the PE/VC asset class, thereby diversifying and giving that fund some upside plays in their overall portfolio. Now, because the VCs were given the mandate by their LPs to find home runs and not a bunch of singles and doubles, this changes the logic by which they make their decisions. You may have heard of the pejorative "lifestyle business" in this context, but it's the reason why a lot of small businesses or low-upside startups don't get funded: they just don't have enough TAM to justify a potential home-run outcome. Second, if we look back to when Bird and Lime blew up, it was still very, very early for these businesses and their breakout trajectory probably didn't look all that dissimilar from other home runs. (Lots of analogues here: how did Clubhouse look in it's early metrics? Probably a lot like Facebook. HQ Trivia probably looked a lot like Zynga's first breakout game.) It's only in hindsight where you're able to look back and see that adoption wasn't what they thought and cities were more adverse to it and so on, but it doesn't mean the investment logic at the time was flawed -- it just means that it didn't work out. Again, any VC will tell you that they'd rather invest 100 times in something with a 1% chance of being Uber than invest in 100 mom-and-pop shops. I'm sure many people will say "I guess, but it was obvious that they weren't going to make it!", to which I say, yeah, maybe. But it was probably obvious that Uber wasn't going to become Uber until they did; you only need to have in a portfolio to make it because you become A16Z or USV. And if the metrics from the first year look like Uber and the default gameplan is investment-driven, loss-heavy aggressive growth, then it doesn't seem like such a bad bet.

rossdavidh 4y ago
While I agree that this logic applies to the first, and maybe (though this is arguable) the second, none of the later startups in the same space were plausible "home runs". If that model was going to work, it would work for the first or second company in that space (unless they were somehow pathologically mismanaged). An also-ran in the same space is not only less likely to succeed, but if they succeed it will be because that space will be one where there are many long-term competitors...which will mean they have no "moat", and cannot be the "home run" that the original investor was looking for. So, in this case, you could excuse the investors in Bird and maybe Lime, but it seemed that there were a lot more companies than that.
- exogeny 4y ago
  Fair, I'm definitely talking about the execution of the "dump VC on it and winner take all" strategy that would have only worked for Bird or Lime. Also, as a personal aside, I actually enjoy the product a lot. Whenever I visit San Diego or Austin, those scooters make getting around downtown a lot more quick and fun and it's absolutely worth $3 or whatever to do it. I do of course get the point that my personal anecdote does not a plausible unicorn make.
DubiousPusher 4y ago
I'm not sure the two companies are all that comparable. When you peel away the glitz and techie veneer, Uber is a giant cab company. Cab companies can work we know that. They added a single universal dispatcher with a consistent interface for all and added an on demand labor system and found ways to gouge labor, all solid ways to make more money but still a giant cab company. Scooter companies weren't modifying a known quantity. They were doing something much more out there. Because they're basically mobile vending machine companies who rely on enticing people to modify their locomotive behavior. That being something notoriously hard to do. Just ask urban planners.
Apocryphon 4y ago
Is Uber even going to become Uber, ever? Aren’t they in the process of tightening up their belts because the era of acceptable unlimited unprofitability for the sake of blitzscaling is ending? Already the subsidized rides aren’t as cheap anymore. Aren’t they doomed as a success story once SoftBank & the Saudis stop footing the bill? There’s not like some sort of AWS play Uber can pivot to as their breadwinner that underwrites their unprofitable consumer-facing business.
fuzzfactor 4y ago
>VCs squandered billions on scooter startups They can afford it. These are the same billionaires that would never invest in a risk-free venture. So this was purely risk capital.

rossdavidh 4y ago

While I agree that this logic applies to the first, and maybe (though this is arguable) the second, none of the later startups in the same space were plausible "home runs". If that model was going to work, it would work for the first or second company in that space (unless they were somehow pathologically mismanaged). An also-ran in the same space is not only less likely to succeed, but if they succeed it will be because that space will be one where there are many long-term competitors...which will mean they have no "moat", and cannot be the "home run" that the original investor was looking for. So, in this case, you could excuse the investors in Bird and maybe Lime, but it seemed that there were a lot more companies than that.

exogeny 4y ago
Fair, I'm definitely talking about the execution of the "dump VC on it and winner take all" strategy that would have only worked for Bird or Lime. Also, as a personal aside, I actually enjoy the product a lot. Whenever I visit San Diego or Austin, those scooters make getting around downtown a lot more quick and fun and it's absolutely worth $3 or whatever to do it. I do of course get the point that my personal anecdote does not a plausible unicorn make.

DubiousPusher 4y ago

I'm not sure the two companies are all that comparable. When you peel away the glitz and techie veneer, Uber is a giant cab company. Cab companies can work we know that. They added a single universal dispatcher with a consistent interface for all and added an on demand labor system and found ways to gouge labor, all solid ways to make more money but still a giant cab company. Scooter companies weren't modifying a known quantity. They were doing something much more out there. Because they're basically mobile vending machine companies who rely on enticing people to modify their locomotive behavior. That being something notoriously hard to do. Just ask urban planners.

Apocryphon 4y ago

Is Uber even going to become Uber, ever? Aren’t they in the process of tightening up their belts because the era of acceptable unlimited unprofitability for the sake of blitzscaling is ending? Already the subsidized rides aren’t as cheap anymore. Aren’t they doomed as a success story once SoftBank & the Saudis stop footing the bill? There’s not like some sort of AWS play Uber can pivot to as their breadwinner that underwrites their unprofitable consumer-facing business.

fuzzfactor 4y ago

>VCs squandered billions on scooter startups They can afford it. These are the same billionaires that would never invest in a risk-free venture. So this was purely risk capital.