Uber has $7.2B sitting in the bank, with losses reducing ($708M) in the first 3 months of 2017. I'm sure they can get profitable or break-even in that time.
I think the concern is that the value of each rider is actually negative, and till now this cost was hidden by VC subsidy.
There are several ways this could play out. One possibility is that if Uber raises their rates, people will mass-migrate to Lyft. Whoever survives that war of attrition may monopolize the space.
It seems the "Death Star" strategy is at least as flawed as its namesake, and really, can they keep selling a fantasy of just-around-the-corner level 5 automation to rich idiots?
A lot of people still seem to believe that fantasy. I find that a bit puzzling as many of those people would be more realistic about other engineering timelines. But there's nonetheless this belief in door-to-door automation that's relevant in a VC time horizon.
I don't even understand how self-driving cars would help Uber. It seems their biggest advantage is their experience with managing all the different ways human drivers can screw up.
The day Mercedes ships the first self-driving car, it will come with "Go make yourself useful"-mode where it shuttles other people from A to X. There'll be dozens of almost identical services that handle the transactions and insurance for 3%-4% of the revenue.
Nothing Uber has done so far will be helpful in such a world. Because you won't need to manage humans, to grope women, or to break workplace safety laws in such a business.
Your model assumes most people still own general-purpose cars, and farm them out on the side. Uber's assumes it will become more possible for people not to, and that they will instead rely on trip-optimized vehicles available centrally on a case-by-case basis. I think they have reason for optimism there...
For one, many times when Uber is in highest demand are also times when car owners most want to use their own vehicles (say, rush hour), so this notion that an Uber-like service can rely entirely on spare hours of personal vehicles is a little silly; sure, there are tons of idle cars at 4am on a Tuesday morning, but who needs to use them all then?
For another, I can totally foresee a future where we move away from this idiotic practice of having the typical vehicle on the road by a five-seater with one person in it, which is hugely inefficient. Commuting alone? Have a tiny car. Going on a trip with the family? Enjoy this self-driving SUV. Need to get from DC to Florida? Enjoy this self-driving bed, and wake up at your destination in the morning. Etc., etc.
Self-driving bed? Really? Is this in the hypothetical future where the Land of the Free, the home of muscle cars, pickup trucks and road trips, has banned cars driven by humans? Otherwise there's no way to make that safe.
Self driving cars are already safer than people when their sensors are not screwed by the weather. As soon as solve the snow and rainy night problem the self driving beds will be a thing and much safer than you or I driving. Sure some idiot could still hit, but a bed doesn't make that woes, if anything it allows ample mattress to act as crumple zone.
Also why are trucks and muscles car bad? Can they somehow not co-exist on the roads with other cars? Are they allergic to self-driving cars?
Everyone knows smoking kills people, its gone down with that knowledge but leveled off at millions of smokers who do it for the pleasure and damn the consequences. Now that vaping is a thing that is going down again.
Americans don't reduce power consumption, recycle in meaningful quantities or take shorter showers. What is making our grid more clean is more renewables (I see a new wind turbine almost everytime I drive on I-80). Recycling is still an issue but sort it from the automatically and that would fix our problem. Water starved areas would rather pipe and truck water in that let their lawns die.
Public transit seems to work best in areas were being faster or more convenient is a car is the luxury. It will never happen in Omaha or any other widespread city. I can get to anywhere in this city in 20 minutes on I-80, I might spend that long waiting for Uber or Lyft. Flip it around and look at Manhattan to that same 10 or 20 miles might take more than an hour by car once you factor in parking and other hassles, the subway, buses and taxis are omnipresent (so you don't need to find your own inconveniently placed vehicle) and often faster then you don't need to park it.
Traffic is just like any other human problem we will have to create hard solutions for problems that would be easy if we could all just pull back a little.
> The day Mercedes ships the first self-driving car, it will come with "Go make yourself useful"-mode
I strongly doubt it. The first properly self-driving Mercedes will be an S-class, and posh people don't buy $100,000 limousines just to rent them out for $14.99 an hour.
Depends on whether they believe in vertical integration or not.
It also depends on there being 'existing players to manage their fleet'.
Size of dealership matters too, a large dealership means that a manufacturer could take the vertical integration route that bit easier than the manufacturer that licenses some third party AI and only has a few dealers.
The app to monetize the self driving cars is very easy to write compared to the 'app' required to do the self-driving. Why would this 'book your ride' front end be given away to anyone from Uber to Hertz?
Few mercedes owners will want strangers in their self driving mercedes. And those that do will need a way to connect with riders, so they'll sign up with the most popular ride sharing service, uber. Riders will happily use them, by signing up through uber.
No one is downloading apps for dozens of other fragmented services.
Benchmark is trying to cut their losses and limit their exposure to a complete Uber meltdown. If possible, they would probably offload the bulk of their shares to SoftBank at a loss just to wash their hands of the situation.
- Uber cannot support its operational business without massive VC subsidies (without drastically raising prices and losing their primary competitive advantage)
- It's too easy for small, local competitors to enter the market
- Uber has been trounced in two of the largest non-US markets
- Waymo legal mess
- The sheer volume/scale of scandal engulfing the company may be impossible to recover from
- Current valuation makes an IPO under less than perfect conditions very challenging.
If this was a well organized, planned round of funding, Benchmark wouldn't have gone behind the backs of the other board members & major shareholders to try and strike some shady deal.
Assuming that were true, what you've just done is doxxed an HN user, which is against site guidelines. The difference between what I did and what you did, is that my comment is based on your comment on Hacker News where you said you were a Tesla investor (https://news.ycombinator.com/item?id=13354703), whereas I've never made mention of why I'm supportive of Uber. You're right, I am, but I've never said why. I'm also supportive of Tesla too, for whatever that is worth. If you want to say someone is supportive of a company based on past previous comments and submissions on Hacker News, that's fine but doxxing someone based on content not on Hacker News is not kosher.
I've identified your employer who you shill for, not your personal details. I haven't doxxed you, and I expect better from someone who considers themselves a professional.
Links to comments where I've shilled for them? I generally try to refrain on commenting on Uber except occasionally to add simple factual corrections, such as the one about Salle Yoo being promoted to CLO.
What I am happy to comment on however is disclosing which of the commenters critical of Uber are critical because they have an undisclosed conflict of interest, such as yourself.
I am critical of Uber because they are a terrible company made up of apathetic investors and employees; if I were to sell all of my Tesla shares today, I would still do everything in my power to burn Uber to the ground and leave nothing but ash.
All the more reason for everyone reading your Uber comments on HN to completely discount them by default every time. You're not participating on HN in good faith.
I'm not saying that Uber doesn't deserve some criticism. It does. So do other tech companies (like Tesla) and even non-tech companies. There's nothing particularly special about Uber with respect to these industry-wide and society-wide problems.
The only difference between Uber and other companies is that it's far far more profitable for outrage porn journalists to write articles with Uber in the headline than any other company.
Look, I know HN loves to hate on Uber, but much of what you say feels more like FUD than a rational explanation.
Let's break it down:
> Uber cannot support its operational business without massive VC subsidies (without drastically raising prices and losing their primary competitive advantage)
As they're not yet public, we have mostly speculation. We don't know this for sure.
> It's too easy for small, local competitors to enter the market
I completely agree, but are the small, local competitors not subsidized by investors like Uber? I don't understand how a competitor without backing could compete against an established super corp.
> Uber has been trounced in two of the largest non-US markets
From an investor's perspective, they came out ahead.
> Waymo legal mess
We'll have to wait and see, but I think everyone needs to take this with a grain of salt. Many, many large companies are in constant lawsuits with each other. Read the Amazon Investor's report, for example -- there are three pages of lawsuits, some of which have been ongoing for over a decade.
> The sheer volume/scale of scandal engulfing the company may be impossible to recover from
I think this is magnified by the Valley -- peers and friends outside of California seem to either not know, or not care deeply. I honestly don't think Uber's bottom line has been harmed.
> Current valuation makes an IPO under less than perfect conditions very challenging.
I think this was always the case. I don't see what's new now versus two years ago. I think Uber has just as hard a time as, say, AirBNB.
> If this was a well organized, planned round of funding, Benchmark wouldn't have gone behind the backs of the other board members to try and strike some shady deal.
At least in my circle, it's widely understood that Bill Gurley burned all his bridges to get Travis out. It's even been suggested he's been the leaker Mike Isaac of the New York Times has been getting his information from. I think Benchmark has destroyed their confidence with the rest of the board (which Travis is still on) and wants to rinse their hands -- I'm sure the feeling is mutual.
What does it say if Softbank takes the deal? Softbank is a huge, successful megacorp. They bought ARM! I would think that if Softbank buys shares in Uber, it's because they see future profits -- which is different than Benchmark's games. Not to mention that Softbank may be a great addition to Uber's board. If Benchmark exits at even 60% of the current valuation, they're out waaaay ahead.
This really seems like a win-win-win for all parties involved.
> I completely agree, but are the small, local competitors not subsidized by investors like Uber? I don't understand how a competitor without backing could compete against an established super corp.
You are 100% correct. The moment Uber and Lyft left Austin, competitors sprang up. The moment Uber and Lyft came back, the competitors are getting crunched.
Once the VC subsidies dry up, however, Uber and Lyft have no barrier to entry.
If I am flying to Austin I am not going to bother with "local competitors". I just want to know whether "Uber is in Austin" or "Uber is in Russia". Yes? I will factor this into my travel plans. No? Not going to even bother. The barrier of entry for an app to MY iPhone device is very high. The barrier of my trust into a company is even higher. However much somebody might like to hate Uber, it is irreplaceable, precisely because they are manically expanded into everywhere in the world.
Or I'll just grab a cab at the airport like I always have. Same with many other cities.
[ADDED: Of course, I don't get the VC subsidies that way. But, in general, cab into city from airport hasn't been a particularly broken system relative to getting cabs in other places.]
At least in my experience getting a cab at the airport is at least 4-10x the cost of a ride sharing company. The cities I travel to frequently have fixed-rate rides out of the airport, and they are heinous.
Its only been around a few years. If they fail and everyone is talking about some other transport service you will eventually consider the others or start walking. What process led to "trust" Uber can be duplicated.
And many people don't have the same attitude as you. Some with avoid uber because of ethical concerns, some will install every rideshare app and carefully consider prices before getting a ride and others will just install whatever and do whatever else.
I understand the 'I don't want to install a new App' concern, but I suspect that will be obviated when you can hail a car using competing services' PWA (or whatever comes next).
At that point there really is no moat to protect Uber's business from competitors of all sizes.
And until then, I think most of us will gladly take 30s to install a new app for a better fare.
> I think most of us will gladly take 30s to install a new app for a better fare.
And then spend 20 minutes signing up with a username/password, storing it to your password manager, adding credit card details, adding customer information to the app, setting privacy settings, etc. etc. No thanks.
I'm with OP here. It is a huge barrier of entry for me to install an app. Mostly because exceedingly few apps should actually be apps (this is why we invented web browsers, but it seems everyone lost their collective minds lately) and I don't need a 50MB thing to invade my privacy to display what effectively is a web application written in html5 and javascript.
Uber is one of those apps that makes it onto my phone solely because it's universal. I have less than zero interest in installing a few dozen apps on my phone for my travels - how the hell would you even know which to use where? Yet another "30s" google?
> completely agree, but are the small, local competitors not subsidized by investors like Uber? I don't understand how a competitor without backing could compete against an established super corp.
The small local competitors were doing this long before Uber came along. They're called taxis. Sure, they did a good job increasing competition in this market. But by and large, all they've done is transferred money from poor drivers and rich investors to middle-class customers.
All they do is collect payments, coordinate dots on a map, and provide driver rating. And any competitor starting now has the advantage of not being $8 billion below water.
?> The sheer volume/scale of scandal engulfing the company may be impossible to recover from
? I think this is magnified by the Valley -- peers and friends outside of California seem to either not know, or not care deeply. I honestly don't think Uber's bottom line has been harmed.
Uber has many stakeholder that are more important than customers: they need their drivers' motivation, they need employees (valley!), the need politicians and judges, and they need investors. All of these groups differ from their customers that they're much better informed, and engaging with Uber is a much bigger risk for them than just using their service.
I dunno, getting an app on people's phones and amassing both sides of a market (critical mass of users and drivers) is no small trick. Uber and Lyft had to massively subsidize each new market to bootstrap it.
The real test is how all the competitors in Austin are doing. We'll find out in a year or so.
I still prefer to use RideAustin. The drivers I've talked to seem more into it and given the choice I'd rather give my money to them than to Uber or Lyft.
Barring changes in the law, number of taxis is limited by number of medallions. Number of Uber/Lyft is limited only by demand, which we probably are not even close to meeting (surge pricing during rush hours is still a thing).
If anything, the reports are that number of taxi rides went down and some taxi companies literally went bankrupt.
So taxis are not a competition.
You claim it's easy to compete with Uber/Lyft. Where is this competition in SF?
How do you explain what happened in Austin? When Uber/Lyft stopped service in Austin, several local competitors emerged.
When Uber/Lyft came back, they all folded within weeks. They just couldn't compete on price or availability.
Furthermore, if you claim that Uber, at their scale, has to subsidize to stay in business, how does that not apply to any other competitor.
Either this can be profitable business, in which case Uber has significant advantage due to their scale, existing user base and marketing presence, or it's not, in which case no-one can make money.
>All they do is collect payments, coordinate dots on a map, and provide driver rating
This is spoken like someone who hasn't lived in a city that only had a taxi monopoly before Uber arrived. It's like saying all the iPhone did was take an iPod and put it in a Nokia. It completely misses all the little nuances and subtleties that made Uber successful and makes people keep coming back to them.
Before Uber, in New York City:
* To get a taxi, I had to be physically near a taxi (and before the outer borough cabs, I had to be basically in Manhattan or Brooklyn right next to the East River). Good luck getting a lift home from south Brooklyn at 2:30 in the morning.
* I had to be physically near the street to hail a cab. With Uber, I can get a car moving towards me while I'm still indoors. This is huge when it's raining in the city. It's huge when you're in a shady area and you don't want to stand outside waiting around, asking to be mugged.
* I was vulnerable to someone walking in front of me and grabbing the cab I was getting the attention of
* I had to be in the cab with the door closed before telling the driver where to go. And if he huffed and said he didn't want to go there, I'd have to threaten him with a call to 311. Great start to a trip where you're stuck in someone's backseat - threatening them after they told you they don't feel like driving somewhere you need to go.
* I often had to carry cash because (even though it's illegal to have a non-working card reader) many taxi's card readers just "stopped working man." I don't even need to have my wallet with me to take an Uber.
* I've had cab drivers get out of the cab and yell at me on the street because he didn't think my 15% tip was enough. Similarly I'm sure some people don't tip. Uber helps both drivers and passengers by providing ratings for both.
And, I don't want to speak for anyone but I imagine plenty of black New Yorkers have some experiences with cab drivers and hailing a cab and the difficulty of getting a ride somewhere. I wonder if any black folks who've dealt with racist cabbies agree with you that all Uber does is collect payments and coordinate dots on a map.
(sorry for the formatting) You're correct that much of this is speculation based on incomplete information. But eventually, the rising amount of potentially negative circumstances equates to real, systemic risk. Here are my responses to your responses :)
> Uber cannot support its operational business without massive VC subsidies (without drastically raising prices and losing their primary competitive advantage)
-- As they're not yet public, we have mostly speculation. We don't know this for sure.
----- I believe there have been enough anecdotal data points and shared financials to strongly support my viewpoint, but I guess it could be argued the other way as well.
> It's too easy for small, local competitors to enter the market
-- I completely agree, but are the small, local competitors not subsidized by investors like Uber? I don't understand how a competitor without backing could compete against an established super corp.
----- Small, local competitors are much better than Established Super Corp at meeting the needs of the local market. They also don't need nearly as much capital as they're just trying to dominate the local market, not the entire world. A proliferation of small, local competitors may be Uber's ultimate undoing - i.e. death by a thousand cuts
> Uber has been trounced in two of the largest non-US markets
-- From an investor's perspective, they came out ahead.
----- But Uber is not in the investment business.
> Waymo legal mess
-- We'll have to wait and see, but I think everyone needs to take this with a grain of salt. Many, many large companies are in constant lawsuits with each other. Read the Amazon Investor's report, for example -- there are three pages of lawsuits, some of which have been ongoing for over a decade.
----- Yes, who knows what will happen here - probably some settlement that doesn't have a long term effect on either company. But it's just one more crappy thing to have to deal with
> The sheer volume/scale of scandal engulfing the company may be impossible to recover from
-- I think this is magnified by the Valley -- peers and friends outside of California seem to either not know, or not care deeply. I honestly don't think Uber's bottom line has been harmed.
----- I think the largest impact of the scandals will be Uber's ability to attract and retain key talent. With all of the other awesome tech companies in the valley, why would I choose to work at Uber? At the very least, they'll have to overpay for talent.
> Current valuation makes an IPO under less than perfect conditions very challenging.
-- I think this was always the case. I don't see what's new now versus two years ago. I think Uber has just as hard a time as, say, AirBNB.
----- You are correct, but today is much further from "perfect conditions" than two years ago
> If this was a well organized, planned round of funding, Benchmark wouldn't have gone behind the backs of the other board members to try and strike some shady deal.
-- At least in my circle, it's widely understood that Bill Gurley burned all his bridges to get Travis out. It's even been suggested he's been the leaker Mike Isaac of the New York Times has been getting his information from. I think Benchmark has destroyed their confidence with the rest of the board (which Travis is still on) and wants to rinse their hands -- I'm sure the feeling is mutual.
----- fair enough, maybe another reason Benchmark wants to move on from their relationship with Uber.
That didn't read like a fizzled case. It reads like Waymo opened up by throwing everything and the kitchen sink at Uber, and now as the case is progressing, the number of legal fronts being fought is getting reduced to a manageable number that Waymo was expecting in the first place. It's unsurprising that the patent parts are getting reduced, since the obvious allegation was theft of trade secrets anyway.
Did you read the article you linked? First two paragraphs:
> Waymo, Alphabet’s self-driving car division, dropped three of four patent infringement claims in its lawsuit against Uber Technologies over the startup’s autonomous vehicle program.
> Waymo’s decision to include patent claims in its lawsuit against Uber was a surprise move for Google parent Alphabet, which normally prides itself on limiting patent fights. The bulk of Waymo’s case is not over patents, but trade secrets.
a loss? are you joking? Benchmark investment in Uber is tracking to be one of the best VC investments ever made, 11 million series A + whatever money they put in pro rata and their stake is currently worth anywhere from 5 billion to 14 billion, 20% of Uber (Series A) + dilution
Based on their current valuation, exercising pro rata could have turned out to be a lot of money, but certainly not 5-14BB. They may be looking to dump at a big discount to the current valuation though, which could put them near a wash or a loss.
This has got to be one of the most surface-level analysis of Uber that I have come across (even by HN's standard of near consistent animosity towards Uber and any other pre-IPO startups including FB in its day). To illustrate:
"Uber cannot support its operational business without massive VC subsidies (without drastically raising prices and losing their primary competitive advantage"
- As another poster replied, this is pure speculation that is outdated by a couple of years at this point. The VC subsidy point is essentially moot in most mature markets.
"It's too easy for small, local competitors to enter the market"
- Read up on GETT, Via and their struggles. You need massive operational investments to enter this industry which reduces the field to one or two competitors in all regions. Uber just appears to have so much competition given the amount of markets they are in.
"Uber has been trounced in two of the largest non-US markets"
- 36% stake in one large competitor and 20% in another is your definition of "trounce"? This puts them at a better position than even Google or FB who are non-existent in the very markets you talk about -- and it could provide them with their Alibaba moments where these stakes themselves carry parts of their valuation (Didi was valued at 50B recently marking Uber's stake at 10B)
"Waymo legal mess"
- Plenty of news about potential settlement not to mention the severe weakening of Google's position post Anthony's firing
"The sheer volume/scale of scandal engulfing the company may be impossible to recover from"
- For the most part only applies to the bay area bubble most of us are in. They still continue to be in a highly dominant position in US.
"Current valuation makes an IPO under less than perfect conditions very challenging."
Uber has: No CEO. No CFO. No COO. No General Counsel. Recent turnover at heads of business, policy and communications, engineering, and product.
Amazon or Google or any other cloud provider could spin up a service that pairs drivers with ride-seekers. This kind of software is no longer a secret sauce and they have the infrastructure to scale instantly and the customer base to market it easily.
Open google maps. See that Uber icon? Swap it out for Waymo. Done. Google could even afford to hire drivers as actual employees and properly schedule them if they wanted to.
you are truly uninformed. There is so much more to the uber tech stack than this. Delivering rides efficiently, worldwide, at a scale of billions per year is not as easy as swapping out a button on google maps.
The human element isn't either. Google can offer ads to acquire drivers and riders for free through its various ad channels (mobile, search). They already own the verticals necessary.
thanks for the information. kind of weird it's not really publicized anymore. Any major products that came out recently as a result? if I recall, Google maps started out that way...
maybe you guys don't like to talk about it anymore though...
You don't have to do I worldwide, which is the problem for Uber. As a passenger, I only need a ride in one place; as a driver, I can only drive in one place. It doesn't cost a lot (for a company with deep pockets) to build the peer to peer stuff, but also lease a hundred cars and temp hire a few hundred people to seed the driver side of the marketplace in a smallish city. If you're Google and can easily drive the passenger side with Google maps integration, great. If you're someone else, get into the ride comparison apps, and put up some local ads. "Tired of Uber? Try Lesser!"
Take a smaller margin (or subsidize more, if the margin is already negative), build the driver side to be aware of and compatible with the reality that drivers are going to be driving for multiple services at once (with the exception of your seed drivers, maybe)
In my experience, if there is an easy way, low risk for a company to make more money, then they will do it. So why haven't Amazon, Google, or such done so already? Do they just hate money?
Reasonable answers include:
- Google and friends don't perceive the ride-sharing market to be a profitable market to enter, in which case Uber may have problems, but competition from Google, Amazon, et all is not one of them.
- It actually isn't so simple to just "spin up" such a service. It would require a large investment in terms of development, regulatory hurdles, and marketing just to get a foot in the door, with a high level of risk that the effort doesn't succeed (see most all business ventures ever).
Uber has many problems. But competition from Google, Amazon, et all is not one of them. Lyft? Yes. Google, Amazon, Apple, Facebook, and so on? No.
I feel like the biggest hurdle these other tech companies see is a lack of "disruption" without automated driving. If a human is still driving then you can't really ever make the system more efficient.
Most tech companies have made their billions by automating processes and undercutting the old school competition. If you can't automate driving you can't build a strong competitive advantage against traditional taxi businesses.
Uber realizes this and they're willing to do anything, no matter how unethical, to get self driving vehicles first. That will be the true market disruption, and likely winner-take-all because you will instantly have such a gigantic cost advantage.
That's why you see Ubers competitors all working on self-driving. They're trying to leapfrog the next obvious evolution of the transport business.
Why would Google Amazon enter a market with 1 massive competitor losing billions subsidizing its rides?
Why wouldn't they develop their own self-driving technology while at the same time assisting in the building of using ride sharing as a habit, and simply wait until uber goes out of business or retreats even further into "profitable" markets before unleashing their low cost self-driving fleet into those markets previously dominated by a heavily subsidized uber?
by cut their losses, I assume you mean lock in a portion of gains. to have an idea of returns Benchmark and other investors experience at Uber's most recent valuation (which doesn't mean that's exactly what SoftBank would pay, if at all), see Uber's Path to IPO: https://equityzen.com/path-to-ipo/uber/
These return estimates are net of liquidation preferences. Even if the transaction takes place and does so at a price slightly lower than the recent valuation, early investors are sitting on a healthy return on investment and internal rate of return.
Disclaimer: I work at EquityZen, the preparer of the estimates in the info graphic linked above.
by cut their losses, I assume you mean lock in a portion of gains. to have an idea of returns Benchmark and other investors experience at Uber's most recent valuation (which doesn't mean that's exactly what SoftBank would pay, if at all), see Uber's Path to IPO: https://equityzen.com/path-to-ipo/uber/
These return estimates are net of liquidation preferences. Even if the transaction takes place and does so at a price slightly lower than the recent valuation, early investors are sitting on a healthy return on investment and internal rate of return.
Disclaimer: I work at EquityZen, the preparer of the estimates in the info graphic linked above.
TBH I don't understand this perspective. If you sign on to a startup as risky as Uber, you have to understand that there is a large chance your shares will be worth nothing. The fact that anyone might not understand this is everything wrong with Silicon Valley.
Many of those engineers have likely stuck around for longer than they're happy with, and for less than market pay. It's one thing when you're excited about the outlook of the company and just started a few
months ago. Even if the options turn out worthless, the work is enjoyable and you've gotten to work for a well-known company.
Now it's been 5 years, the company looks to be cratering quickly, and you're burnt out. You've been hanging in there because it would be financially insane to quit when you've got a very high likelihood of walking away with millions.
Take that last bit away, and you're telling me you can't understand why engineers might start walking away in droves?
Of course I can understand why engineers might leave in droves -- but it's all a risk they were willing to take. It's silly to be bitter than your bet didn't pay off -- few of them ever do.
Employees frequently don't have an accurate picture of the expected value of stock options for numerous reasons, not all of which are their fault. Silicon Valley engineers are not Homo economicus.
As an employee of a startup, I agree, but it's ultimately their responsibility. My recruiter inflated valuation, which I am still bitter about, but regardless when I signed on I realized that this is just funny money until liquidation.
If a Silicon Valley engineer goes and buys a house, planning on a big payout on their options, then they're a fool.
I can't even begin to understand how it's not immediately apparent to you that after five, six, or more years at a company, people might be sticking around longer than they otherwise would because it looked like they had an overwhelmingly likely chance of walking away with millions.
Take that incentive away and you don't have anything to offset the burnout from the work environment there.
When a SV startup goes belly-up, the first to get fucked are the employees. Even employee #1 and even if you started a week after incorporation, your equity is the first to disappear. And add to that, the fact that many startups have allowed founders and key executives (but not rank and file) to sell options and take money out pre-exit.
In my experience, startup employees are largely not aware of the drastic difference in equity distribution and protections. They know, of course, that founders and investors have a bigger share than they do, but they don't realize how lopsided it is, and that founders can walk away with multimillions as they drop to zero themselves.
In fact, in cases where large numbers of employees got rich (>$1M... Google, FB, etc) from an exit, the founders did not become just "rich", but rather became multibillionaires, and the wealthiest people on the planet.
But this is Silicon Valley, and we have Hacker News, and lo your comment aptly describes the risks involved when working for a startup.
You know this, and I know this, and frankly anyone who is going to sign an offer letter should know this, but they often don't, and people often don't understand predatory loans either.
If you're an SV engineer making six figures I have no sympathy if you don't understand how your options work. You can afford a personal financial advisor.
I think you can easily separate understanding risk from being disappointed that the risky outcome occurred. It's the difference between knowing (or not knowing) that as a poker player, getting it in preflop with AA vs KK is a great idea, and being sad that your opponent spiked a K on the flop for a $5,000 pot.
Now, good poker players do talk a lot about not being "results-oriented" (even if your AA is rivered by KK, you played the hand well if you got the money in before that), and many players will tell you that the way to do this is to cultivate a sense of detachment about money coming in and out. I certainly try to avoid being sad when I lose a big hand; such is life. But being sad isn't the end of the world, so long as you got the money in good and continue to do so.
Any individual company is a risky asset class. The advantage of a company you work for is that you are able to influence the outcome, and for small companies, you may know insider information that allows you to decide whether to invest money or your effort in the company.
But yes, working for, or investing in, a pre IPO company is risky and if you want to avoid risk you should just make sure you're getting a bi-weekly salary you're happy with.
Uber wasn't a risky startup about four or five years ago. They were a startup, yes, with all the risk that being a startup implies, but they were doing very well and expanding into new cities and holding their own against a competitor whose only attempt at differentiation was quirky pink mustaches. Even in cities that (unlike SF) had functional taxi systems, they offered compelling features that the taxis didn't have at the time: app-based realtime requests and reliable credit card payments.
Or, put another way, if Uber's shares in 2013 should be estimated at zero, should anyone's shares not? Anyone substantially more stable than Uber is either paying you actual cash, or giving you something with a liquid market and a clear market price (e.g., RSUs on post-IPO stock, which you can just sell as soon as you get them) instead of ISOs.
The entire point of ISOs is to avoid paying your employees a competitive salary entirely in cash by giving them something that you're claiming has more expected value than the difference between their base salary and what they're worth. If you're lying to them, then it's unsurprising that they'll be bitter.
Uber should have just gone public, now their future is too fragile because it depends on their small number of VC investors who probably are thinking that they will still make more money than breakeven if they exit now.
People criticize Uber for operating in a red ocean but this was the case for Amazon too. They just stuck around and survived while everyone else in the dotcom era died off.
But it's looking more like that kind of scenario is impossible now that their founder/CEO is out and the VCs are looking to get out.
Zerohedge has an update.[1] So does NYT.[2] The loss rate is down a little, to $708 million per quarter. Uber claims to have $7.2 billion in cash. But that's not all investment capital; at least $1.15 billion of it is from debt. At their current burn rate, they have about two years of runway left before the investment capital runs out. So they can stretch things to mid-2019, if the investors are agreeable.
The thing about becoming profitable is that it extends your runway as you do it. So they may have 10 months of runway in q2, and 10 months of runway in q3 and 10 months of runway in q4 and 12 months of runway in q1 '18 and and 16 months of runway in q2 '18 and 48 months of runway in q3 '18 and profitable q4 2018.
despite all the tabloids, i still use uber here in LA and i honestly dont see that changing much for most people as well. all this backlash feels a bit strange to me, do people get paid to hate somehere ? lol
So, as a (sometimes) startup employee, how can I identify a setup such that when a major investor makes money off their stock, I too have the option of making money off my stock?
I've heard of setups like this, but I don't remember what they're called - something like, you own stock, and when someone sells a percent of their shares, you can sell the percent of your shares at the same rate to the same party (or back to the company? or something?).
What questions SHOULD you ask, and what kinds of answers are you looking for?
I think it's a specialist question. All of this assumes you have leverage to get what you ask for.
If you are concerned about a company you work for making a lot of money after lots of VC rounds: You would probably have to get warrants, written by someone* who is really smart.
If you think the company won't need to do many rounds: just look for stock (if you're in really early, e.g. grant+zero-value-83b election still applies) or options (if you're in after the really early stages of the company).
*Find a great accountant who internally has tax lawyers to help you negotiate.
I imagine I will use this information somewhere in the "either stock that I can ensure some of the value of, or actually fair market wages". I had a conversation like this that could have benefited from this info not so long ago; I did end up walking away and no-one was happy.
Call me cynical, but perhaps - just perhaps - this was part of the reason for Benchmark's fallout with Travis. Perhaps they wanted to realize some of the gains in their shares of Uber and knew Kalanick would be (or already had been) opposed to it. Benchmark already made astronomical gains on their shares (at least on paper) and perhaps they were looking for a way to now cash in on some of those returns.
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[ 3.0 ms ] story [ 191 ms ] threadUber runs out of cash next year if they don't. If Softbank puts money in, it will probably be on terms very favorable to Softbank.
Uber's funding rounds: [1] The "undisclosed amount" round in 2017 was reportedly not big enough to change the fundamentals.
[1] https://www.crunchbase.com/organization/uber/funding-rounds
According to this (Link: https://www.nytimes.com/2017/05/31/technology/uber-limits-lo...)
Uber has $7.2B sitting in the bank, with losses reducing ($708M) in the first 3 months of 2017. I'm sure they can get profitable or break-even in that time.
There are several ways this could play out. One possibility is that if Uber raises their rates, people will mass-migrate to Lyft. Whoever survives that war of attrition may monopolize the space.
The day Mercedes ships the first self-driving car, it will come with "Go make yourself useful"-mode where it shuttles other people from A to X. There'll be dozens of almost identical services that handle the transactions and insurance for 3%-4% of the revenue.
Nothing Uber has done so far will be helpful in such a world. Because you won't need to manage humans, to grope women, or to break workplace safety laws in such a business.
For one, many times when Uber is in highest demand are also times when car owners most want to use their own vehicles (say, rush hour), so this notion that an Uber-like service can rely entirely on spare hours of personal vehicles is a little silly; sure, there are tons of idle cars at 4am on a Tuesday morning, but who needs to use them all then?
For another, I can totally foresee a future where we move away from this idiotic practice of having the typical vehicle on the road by a five-seater with one person in it, which is hugely inefficient. Commuting alone? Have a tiny car. Going on a trip with the family? Enjoy this self-driving SUV. Need to get from DC to Florida? Enjoy this self-driving bed, and wake up at your destination in the morning. Etc., etc.
Also why are trucks and muscles car bad? Can they somehow not co-exist on the roads with other cars? Are they allergic to self-driving cars?
Everyone knows smoking kills people, its gone down with that knowledge but leveled off at millions of smokers who do it for the pleasure and damn the consequences. Now that vaping is a thing that is going down again.
Americans don't reduce power consumption, recycle in meaningful quantities or take shorter showers. What is making our grid more clean is more renewables (I see a new wind turbine almost everytime I drive on I-80). Recycling is still an issue but sort it from the automatically and that would fix our problem. Water starved areas would rather pipe and truck water in that let their lawns die.
Public transit seems to work best in areas were being faster or more convenient is a car is the luxury. It will never happen in Omaha or any other widespread city. I can get to anywhere in this city in 20 minutes on I-80, I might spend that long waiting for Uber or Lyft. Flip it around and look at Manhattan to that same 10 or 20 miles might take more than an hour by car once you factor in parking and other hassles, the subway, buses and taxis are omnipresent (so you don't need to find your own inconveniently placed vehicle) and often faster then you don't need to park it.
Traffic is just like any other human problem we will have to create hard solutions for problems that would be easy if we could all just pull back a little.
I strongly doubt it. The first properly self-driving Mercedes will be an S-class, and posh people don't buy $100,000 limousines just to rent them out for $14.99 an hour.
Car manufacturers will not want to do this themselves. They will want to partner with an existing player who will manage their fleet.
It also depends on there being 'existing players to manage their fleet'.
Size of dealership matters too, a large dealership means that a manufacturer could take the vertical integration route that bit easier than the manufacturer that licenses some third party AI and only has a few dealers.
The app to monetize the self driving cars is very easy to write compared to the 'app' required to do the self-driving. Why would this 'book your ride' front end be given away to anyone from Uber to Hertz?
No one is downloading apps for dozens of other fragmented services.
- Uber cannot support its operational business without massive VC subsidies (without drastically raising prices and losing their primary competitive advantage)
- It's too easy for small, local competitors to enter the market
- Uber has been trounced in two of the largest non-US markets
- Waymo legal mess
- The sheer volume/scale of scandal engulfing the company may be impossible to recover from
- Current valuation makes an IPO under less than perfect conditions very challenging.
If this was a well organized, planned round of funding, Benchmark wouldn't have gone behind the backs of the other board members & major shareholders to try and strike some shady deal.
Didn't Benchmark get in very early? If they got in Series A or B..there are no losses for them. They probably have at least a 10-20x payout already.
I assume one is China, which is the other one?
They are not leaving India.
What I am happy to comment on however is disclosing which of the commenters critical of Uber are critical because they have an undisclosed conflict of interest, such as yourself.
I'm not saying that Uber doesn't deserve some criticism. It does. So do other tech companies (like Tesla) and even non-tech companies. There's nothing particularly special about Uber with respect to these industry-wide and society-wide problems.
The only difference between Uber and other companies is that it's far far more profitable for outrage porn journalists to write articles with Uber in the headline than any other company.
Let's break it down:
> Uber cannot support its operational business without massive VC subsidies (without drastically raising prices and losing their primary competitive advantage)
As they're not yet public, we have mostly speculation. We don't know this for sure.
> It's too easy for small, local competitors to enter the market
I completely agree, but are the small, local competitors not subsidized by investors like Uber? I don't understand how a competitor without backing could compete against an established super corp.
> Uber has been trounced in two of the largest non-US markets
From an investor's perspective, they came out ahead.
> Waymo legal mess
We'll have to wait and see, but I think everyone needs to take this with a grain of salt. Many, many large companies are in constant lawsuits with each other. Read the Amazon Investor's report, for example -- there are three pages of lawsuits, some of which have been ongoing for over a decade.
> The sheer volume/scale of scandal engulfing the company may be impossible to recover from
I think this is magnified by the Valley -- peers and friends outside of California seem to either not know, or not care deeply. I honestly don't think Uber's bottom line has been harmed.
> Current valuation makes an IPO under less than perfect conditions very challenging.
I think this was always the case. I don't see what's new now versus two years ago. I think Uber has just as hard a time as, say, AirBNB.
> If this was a well organized, planned round of funding, Benchmark wouldn't have gone behind the backs of the other board members to try and strike some shady deal.
At least in my circle, it's widely understood that Bill Gurley burned all his bridges to get Travis out. It's even been suggested he's been the leaker Mike Isaac of the New York Times has been getting his information from. I think Benchmark has destroyed their confidence with the rest of the board (which Travis is still on) and wants to rinse their hands -- I'm sure the feeling is mutual.
What does it say if Softbank takes the deal? Softbank is a huge, successful megacorp. They bought ARM! I would think that if Softbank buys shares in Uber, it's because they see future profits -- which is different than Benchmark's games. Not to mention that Softbank may be a great addition to Uber's board. If Benchmark exits at even 60% of the current valuation, they're out waaaay ahead.
This really seems like a win-win-win for all parties involved.
You are 100% correct. The moment Uber and Lyft left Austin, competitors sprang up. The moment Uber and Lyft came back, the competitors are getting crunched.
Once the VC subsidies dry up, however, Uber and Lyft have no barrier to entry.
[ADDED: Of course, I don't get the VC subsidies that way. But, in general, cab into city from airport hasn't been a particularly broken system relative to getting cabs in other places.]
And many people don't have the same attitude as you. Some with avoid uber because of ethical concerns, some will install every rideshare app and carefully consider prices before getting a ride and others will just install whatever and do whatever else.
At that point there really is no moat to protect Uber's business from competitors of all sizes.
And until then, I think most of us will gladly take 30s to install a new app for a better fare.
And then spend 20 minutes signing up with a username/password, storing it to your password manager, adding credit card details, adding customer information to the app, setting privacy settings, etc. etc. No thanks.
I'm with OP here. It is a huge barrier of entry for me to install an app. Mostly because exceedingly few apps should actually be apps (this is why we invented web browsers, but it seems everyone lost their collective minds lately) and I don't need a 50MB thing to invade my privacy to display what effectively is a web application written in html5 and javascript.
Uber is one of those apps that makes it onto my phone solely because it's universal. I have less than zero interest in installing a few dozen apps on my phone for my travels - how the hell would you even know which to use where? Yet another "30s" google?
Amen!
How did people live before flushing toilets? I guess we will never know because life is uber. If uber doesnt provide it it must be impossible.
> completely agree, but are the small, local competitors not subsidized by investors like Uber? I don't understand how a competitor without backing could compete against an established super corp.
The small local competitors were doing this long before Uber came along. They're called taxis. Sure, they did a good job increasing competition in this market. But by and large, all they've done is transferred money from poor drivers and rich investors to middle-class customers.
All they do is collect payments, coordinate dots on a map, and provide driver rating. And any competitor starting now has the advantage of not being $8 billion below water.
?> The sheer volume/scale of scandal engulfing the company may be impossible to recover from
? I think this is magnified by the Valley -- peers and friends outside of California seem to either not know, or not care deeply. I honestly don't think Uber's bottom line has been harmed.
Uber has many stakeholder that are more important than customers: they need their drivers' motivation, they need employees (valley!), the need politicians and judges, and they need investors. All of these groups differ from their customers that they're much better informed, and engaging with Uber is a much bigger risk for them than just using their service.
The real test is how all the competitors in Austin are doing. We'll find out in a year or so.
https://www.curbed.com/2017/6/14/15803138/austin-uber-lyft-t...
Per http://sanfrancisco.cbslocal.com/2016/11/07/number-of-uber-l... in SF there are 1.8k taxis and 45k Uber/Lyft drivers. That's 4% taxi vs. Uber/Lyft.
Barring changes in the law, number of taxis is limited by number of medallions. Number of Uber/Lyft is limited only by demand, which we probably are not even close to meeting (surge pricing during rush hours is still a thing).
If anything, the reports are that number of taxi rides went down and some taxi companies literally went bankrupt.
So taxis are not a competition.
You claim it's easy to compete with Uber/Lyft. Where is this competition in SF?
How do you explain what happened in Austin? When Uber/Lyft stopped service in Austin, several local competitors emerged.
When Uber/Lyft came back, they all folded within weeks. They just couldn't compete on price or availability.
Furthermore, if you claim that Uber, at their scale, has to subsidize to stay in business, how does that not apply to any other competitor.
Either this can be profitable business, in which case Uber has significant advantage due to their scale, existing user base and marketing presence, or it's not, in which case no-one can make money.
This is spoken like someone who hasn't lived in a city that only had a taxi monopoly before Uber arrived. It's like saying all the iPhone did was take an iPod and put it in a Nokia. It completely misses all the little nuances and subtleties that made Uber successful and makes people keep coming back to them.
Before Uber, in New York City:
* To get a taxi, I had to be physically near a taxi (and before the outer borough cabs, I had to be basically in Manhattan or Brooklyn right next to the East River). Good luck getting a lift home from south Brooklyn at 2:30 in the morning.
* I had to be physically near the street to hail a cab. With Uber, I can get a car moving towards me while I'm still indoors. This is huge when it's raining in the city. It's huge when you're in a shady area and you don't want to stand outside waiting around, asking to be mugged.
* I was vulnerable to someone walking in front of me and grabbing the cab I was getting the attention of
* I had to be in the cab with the door closed before telling the driver where to go. And if he huffed and said he didn't want to go there, I'd have to threaten him with a call to 311. Great start to a trip where you're stuck in someone's backseat - threatening them after they told you they don't feel like driving somewhere you need to go.
* I often had to carry cash because (even though it's illegal to have a non-working card reader) many taxi's card readers just "stopped working man." I don't even need to have my wallet with me to take an Uber.
* I've had cab drivers get out of the cab and yell at me on the street because he didn't think my 15% tip was enough. Similarly I'm sure some people don't tip. Uber helps both drivers and passengers by providing ratings for both.
And, I don't want to speak for anyone but I imagine plenty of black New Yorkers have some experiences with cab drivers and hailing a cab and the difficulty of getting a ride somewhere. I wonder if any black folks who've dealt with racist cabbies agree with you that all Uber does is collect payments and coordinate dots on a map.
> Uber cannot support its operational business without massive VC subsidies (without drastically raising prices and losing their primary competitive advantage)
-- As they're not yet public, we have mostly speculation. We don't know this for sure.
----- I believe there have been enough anecdotal data points and shared financials to strongly support my viewpoint, but I guess it could be argued the other way as well.
> It's too easy for small, local competitors to enter the market
-- I completely agree, but are the small, local competitors not subsidized by investors like Uber? I don't understand how a competitor without backing could compete against an established super corp.
----- Small, local competitors are much better than Established Super Corp at meeting the needs of the local market. They also don't need nearly as much capital as they're just trying to dominate the local market, not the entire world. A proliferation of small, local competitors may be Uber's ultimate undoing - i.e. death by a thousand cuts
> Uber has been trounced in two of the largest non-US markets
-- From an investor's perspective, they came out ahead.
----- But Uber is not in the investment business.
> Waymo legal mess
-- We'll have to wait and see, but I think everyone needs to take this with a grain of salt. Many, many large companies are in constant lawsuits with each other. Read the Amazon Investor's report, for example -- there are three pages of lawsuits, some of which have been ongoing for over a decade.
----- Yes, who knows what will happen here - probably some settlement that doesn't have a long term effect on either company. But it's just one more crappy thing to have to deal with
> The sheer volume/scale of scandal engulfing the company may be impossible to recover from
-- I think this is magnified by the Valley -- peers and friends outside of California seem to either not know, or not care deeply. I honestly don't think Uber's bottom line has been harmed.
----- I think the largest impact of the scandals will be Uber's ability to attract and retain key talent. With all of the other awesome tech companies in the valley, why would I choose to work at Uber? At the very least, they'll have to overpay for talent.
> Current valuation makes an IPO under less than perfect conditions very challenging.
-- I think this was always the case. I don't see what's new now versus two years ago. I think Uber has just as hard a time as, say, AirBNB.
----- You are correct, but today is much further from "perfect conditions" than two years ago
> If this was a well organized, planned round of funding, Benchmark wouldn't have gone behind the backs of the other board members to try and strike some shady deal.
-- At least in my circle, it's widely understood that Bill Gurley burned all his bridges to get Travis out. It's even been suggested he's been the leaker Mike Isaac of the New York Times has been getting his information from. I think Benchmark has destroyed their confidence with the rest of the board (which Travis is still on) and wants to rinse their hands -- I'm sure the feeling is mutual.
----- fair enough, maybe another reason Benchmark wants to move on from their relationship with Uber.
http://www.mercurynews.com/2017/07/07/waymo-drops-most-paten...
> Waymo, Alphabet’s self-driving car division, dropped three of four patent infringement claims in its lawsuit against Uber Technologies over the startup’s autonomous vehicle program.
> Waymo’s decision to include patent claims in its lawsuit against Uber was a surprise move for Google parent Alphabet, which normally prides itself on limiting patent fights. The bulk of Waymo’s case is not over patents, but trade secrets.
"Uber cannot support its operational business without massive VC subsidies (without drastically raising prices and losing their primary competitive advantage"
- As another poster replied, this is pure speculation that is outdated by a couple of years at this point. The VC subsidy point is essentially moot in most mature markets.
"It's too easy for small, local competitors to enter the market"
- Read up on GETT, Via and their struggles. You need massive operational investments to enter this industry which reduces the field to one or two competitors in all regions. Uber just appears to have so much competition given the amount of markets they are in.
"Uber has been trounced in two of the largest non-US markets"
- 36% stake in one large competitor and 20% in another is your definition of "trounce"? This puts them at a better position than even Google or FB who are non-existent in the very markets you talk about -- and it could provide them with their Alibaba moments where these stakes themselves carry parts of their valuation (Didi was valued at 50B recently marking Uber's stake at 10B)
"Waymo legal mess"
- Plenty of news about potential settlement not to mention the severe weakening of Google's position post Anthony's firing
"The sheer volume/scale of scandal engulfing the company may be impossible to recover from"
- For the most part only applies to the bay area bubble most of us are in. They still continue to be in a highly dominant position in US.
"Current valuation makes an IPO under less than perfect conditions very challenging."
- Fair point.
Amazon or Google or any other cloud provider could spin up a service that pairs drivers with ride-seekers. This kind of software is no longer a secret sauce and they have the infrastructure to scale instantly and the customer base to market it easily.
I'm not sure I've ever seen the difficulty of starting a marketplace company with built-in network effects so vastly underestimated.
Now there's a reference I have not heard in a long, long time.
Google doesn't still do that, do they?
Source: I work there
maybe you guys don't like to talk about it anymore though...
Take a smaller margin (or subsidize more, if the margin is already negative), build the driver side to be aware of and compatible with the reality that drivers are going to be driving for multiple services at once (with the exception of your seed drivers, maybe)
People said the same thing about Google Plus and yet they completely failed. Its not so easy as it looks even if you have billions in the bank.
Reasonable answers include:
- Google and friends don't perceive the ride-sharing market to be a profitable market to enter, in which case Uber may have problems, but competition from Google, Amazon, et all is not one of them.
- It actually isn't so simple to just "spin up" such a service. It would require a large investment in terms of development, regulatory hurdles, and marketing just to get a foot in the door, with a high level of risk that the effort doesn't succeed (see most all business ventures ever).
Uber has many problems. But competition from Google, Amazon, et all is not one of them. Lyft? Yes. Google, Amazon, Apple, Facebook, and so on? No.
Most tech companies have made their billions by automating processes and undercutting the old school competition. If you can't automate driving you can't build a strong competitive advantage against traditional taxi businesses.
Uber realizes this and they're willing to do anything, no matter how unethical, to get self driving vehicles first. That will be the true market disruption, and likely winner-take-all because you will instantly have such a gigantic cost advantage.
That's why you see Ubers competitors all working on self-driving. They're trying to leapfrog the next obvious evolution of the transport business.
Why wouldn't they develop their own self-driving technology while at the same time assisting in the building of using ride sharing as a habit, and simply wait until uber goes out of business or retreats even further into "profitable" markets before unleashing their low cost self-driving fleet into those markets previously dominated by a heavily subsidized uber?
oh wait a minute ...
These return estimates are net of liquidation preferences. Even if the transaction takes place and does so at a price slightly lower than the recent valuation, early investors are sitting on a healthy return on investment and internal rate of return.
Disclaimer: I work at EquityZen, the preparer of the estimates in the info graphic linked above.
These return estimates are net of liquidation preferences. Even if the transaction takes place and does so at a price slightly lower than the recent valuation, early investors are sitting on a healthy return on investment and internal rate of return.
Disclaimer: I work at EquityZen, the preparer of the estimates in the info graphic linked above.
Uber is dead in 5 years.
Now it's been 5 years, the company looks to be cratering quickly, and you're burnt out. You've been hanging in there because it would be financially insane to quit when you've got a very high likelihood of walking away with millions.
Take that last bit away, and you're telling me you can't understand why engineers might start walking away in droves?
If a Silicon Valley engineer goes and buys a house, planning on a big payout on their options, then they're a fool.
Take that incentive away and you don't have anything to offset the burnout from the work environment there.
When a SV startup goes belly-up, the first to get fucked are the employees. Even employee #1 and even if you started a week after incorporation, your equity is the first to disappear. And add to that, the fact that many startups have allowed founders and key executives (but not rank and file) to sell options and take money out pre-exit.
In my experience, startup employees are largely not aware of the drastic difference in equity distribution and protections. They know, of course, that founders and investors have a bigger share than they do, but they don't realize how lopsided it is, and that founders can walk away with multimillions as they drop to zero themselves.
In fact, in cases where large numbers of employees got rich (>$1M... Google, FB, etc) from an exit, the founders did not become just "rich", but rather became multibillionaires, and the wealthiest people on the planet.
You know this, and I know this, and frankly anyone who is going to sign an offer letter should know this, but they often don't, and people often don't understand predatory loans either.
If you're an SV engineer making six figures I have no sympathy if you don't understand how your options work. You can afford a personal financial advisor.
Now, good poker players do talk a lot about not being "results-oriented" (even if your AA is rivered by KK, you played the hand well if you got the money in before that), and many players will tell you that the way to do this is to cultivate a sense of detachment about money coming in and out. I certainly try to avoid being sad when I lose a big hand; such is life. But being sad isn't the end of the world, so long as you got the money in good and continue to do so.
But yes, working for, or investing in, a pre IPO company is risky and if you want to avoid risk you should just make sure you're getting a bi-weekly salary you're happy with.
Or, put another way, if Uber's shares in 2013 should be estimated at zero, should anyone's shares not? Anyone substantially more stable than Uber is either paying you actual cash, or giving you something with a liquid market and a clear market price (e.g., RSUs on post-IPO stock, which you can just sell as soon as you get them) instead of ISOs.
The entire point of ISOs is to avoid paying your employees a competitive salary entirely in cash by giving them something that you're claiming has more expected value than the difference between their base salary and what they're worth. If you're lying to them, then it's unsurprising that they'll be bitter.
People criticize Uber for operating in a red ocean but this was the case for Amazon too. They just stuck around and survived while everyone else in the dotcom era died off.
But it's looking more like that kind of scenario is impossible now that their founder/CEO is out and the VCs are looking to get out.
It has been echoed so many times that it's now fact on HN and gets repeated in every thread but is there any real source on this?
Or maybe they can find another sucker.
[1] http://www.zerohedge.com/news/2017-04-14/cash-burning-machin... [2] https://www.nytimes.com/2017/05/31/technology/uber-limits-lo...
I've heard of setups like this, but I don't remember what they're called - something like, you own stock, and when someone sells a percent of their shares, you can sell the percent of your shares at the same rate to the same party (or back to the company? or something?).
What questions SHOULD you ask, and what kinds of answers are you looking for?
If you are concerned about a company you work for making a lot of money after lots of VC rounds: You would probably have to get warrants, written by someone* who is really smart.
If you think the company won't need to do many rounds: just look for stock (if you're in really early, e.g. grant+zero-value-83b election still applies) or options (if you're in after the really early stages of the company).
*Find a great accountant who internally has tax lawyers to help you negotiate.