This doesn't come as a surprise to me. Beepi was, quite frankly, idiotic in it's spending - as are most of these companies. 100 engineers doesn't always mean you get things done quicker - WhatsApp had something like 15 engineers with > 500 million users on their platform at the time of the Facebook acquisition of $19 billion.
Note to startups: Hire quality, not quantity. And ONLY hire if you're absolutely desperate. If you're technical, do the work yourself instead of throwing your investors money at it. If you're lucky enough to get an investment, treat it as your last one, and never assume more money is coming.
If I had a dollar for every time I have heard and ignored the opposite advice -- hire as much as you can to impress investors -- I'd... well... actually we do have many dollars for ignoring that advice.
As venture capitalists became more discerning, investment in U.S. tech startups plummeted by 30% in 2016 from a year earlier.
But: Investment in 2016 is still higher than any year from 2002-2013.
“There are companies that everybody wants to invest in and there are a large set of companies that almost nobody wants to invest in,” said venture capitalist Keith Rabois of Khosla Ventures.
But: isn't this always the case?
“There’s going to be a shakeout” for companies that can’t show a profit, said James Beriker, the chief executive of meal-delivery service Munchery.
Well, eventually a business needs to show revenue and a path to profit. Otherwise the music stops and the equity has no value.
Beepi guaranteed sellers a price, and if it couldn’t find a buyer in 30 days, it purchased the car. Beepi marked up the price and pocketed the difference.
Beepi was whipsawed by cars that sat unsold for a month, and that Beepi therefore had to purchase. Losses on those cars could reach more than $5,000 per high-end car, former employees said.
For all the posters admonishing Beepi for spending so much money so fast: this looks like a legitimately capital intensive business. It also looks like it has unlimited exposure to high expenses related to immobile inventory.
The admonishment is deserved; High capital requirements don't necessarily mean high burn rates, they mean that you'd better be damn sure that you have a viable business model to make returns on all that capital. The "unlimited exposure to high expenses" isn't some nit, it's a fatal flaw in their strategy.
All that does is ensure that only the largest companies, who can eat losses, are the ones that innovate on hard technologies.
Some things have no precedent in the market and I sure don't want those companies with out sized power already to be the only ones that can exploit it.
"Beepi guaranteed sellers a price, and if it couldn’t find a buyer in 30 days, it purchased the car. Beepi marked up the price and pocketed the difference.
"
Wait, am I understanding this correctly?
They guaranteed high prices which they were not able to find buyers for, and as a result bought the cars at those high prices?
And they immediately offered this service to all users?
That seems idiotic for a startup. I would have just tried to make money off charging a small transaction fee while working to see if the business model they were aiming for had any viability.
What is the business model for what you are proposing? Car sales on consignment? That might work for a small number of well off consumers, but most people don't own their cars outright. As such, they are unable or unwilling to continue to make payments on a car they can't use.
TBH, it sounds very much like what open door does with housing.
Carmax does it with millions of cars per year. It's not magic. If you're a market maker, you need volume, capital, and intelligent valuations and pricing of your goods.
Not mentioned - the Fed raised interest rates in December and March. With some signaling that this could continue. This has impacts across all of Venture Capital, but particularly late stage... And especially capital-intensive business, which seem to be the prominent examples here.
There's nothing capital intensive about Beepi's business - all car purchased you can finance with a floor plan line. Beepi wasted money on market (over $20M last year) when it didn't have product market fit.
23 comments
[ 3.6 ms ] story [ 54.4 ms ] threadWow. Remarkable a start up could be so successful at raising and so bad at developing anything approaching a product.
http://uk.businessinsider.com/renault-acquires-failed-taxi-s...
EDIT: I hate BI for burying at the very end that their 250 mil number at the head of the article is actually 50-something.
"What do you mean, "It's over"?"
"We're bankrupt. The stock is at zero."
"But I have 52 million shares. What's 52 million times zero? And don't tell me it's zero!"
"Bart, it's not about how much stock you have. It's about how much copper wire you can get out of the building with!"
https://www.youtube.com/watch?v=arENYYkYBts
And another on Bill Gates acquiring Compu Global Hyper Meganet from Homer: https://www.youtube.com/watch?v=H27rfr59RiE
My strategy: Search for the title on Twitter:
https://twitter.com/search?q=once+flush+startups
Click from there, you should be able to see it.
Note to startups: Hire quality, not quantity. And ONLY hire if you're absolutely desperate. If you're technical, do the work yourself instead of throwing your investors money at it. If you're lucky enough to get an investment, treat it as your last one, and never assume more money is coming.
As venture capitalists became more discerning, investment in U.S. tech startups plummeted by 30% in 2016 from a year earlier.
But: Investment in 2016 is still higher than any year from 2002-2013.
“There are companies that everybody wants to invest in and there are a large set of companies that almost nobody wants to invest in,” said venture capitalist Keith Rabois of Khosla Ventures.
But: isn't this always the case?
“There’s going to be a shakeout” for companies that can’t show a profit, said James Beriker, the chief executive of meal-delivery service Munchery.
Well, eventually a business needs to show revenue and a path to profit. Otherwise the music stops and the equity has no value.
Beepi guaranteed sellers a price, and if it couldn’t find a buyer in 30 days, it purchased the car. Beepi marked up the price and pocketed the difference.
Beepi was whipsawed by cars that sat unsold for a month, and that Beepi therefore had to purchase. Losses on those cars could reach more than $5,000 per high-end car, former employees said.
For all the posters admonishing Beepi for spending so much money so fast: this looks like a legitimately capital intensive business. It also looks like it has unlimited exposure to high expenses related to immobile inventory.
Some things have no precedent in the market and I sure don't want those companies with out sized power already to be the only ones that can exploit it.
Wait, am I understanding this correctly?
They guaranteed high prices which they were not able to find buyers for, and as a result bought the cars at those high prices?
And they immediately offered this service to all users? That seems idiotic for a startup. I would have just tried to make money off charging a small transaction fee while working to see if the business model they were aiming for had any viability.
TBH, it sounds very much like what open door does with housing.
That's a redirect via Twitter.