Mind going further? I read “leveraged” as “debt-funded”, but VCs get their funds from LPs (or from cash on company balance sheets). Where does leverage come into play?
One underlying reason for VCs making bad investments could be recent fiscal policies pushing interest rates way down. This causes large investors (e.g. pension funds) to look for returns in historically riskier investments, leading to much more money than usual being invested in VC funds. This leaves VCs with a huge pile of cash and looking for companies to fund which means they will make riskier investments than usual (including investing larger dollar amounts than normal). All of this, in turn, leads to a potential bubble with all the negative impacts we've experienced in past bubbles.
This may not be a huge deal if it's confined to the tech startup space. But these large investors are not putting all their eggs in one basket, they're spreading money out into many other industries like housing, financials, emerging markets, etc. If this large amount of money chasing returns has the same effect in these other industries, then we have the beginnings of systemic risk. This is now a very big deal for everyone.
The premise makes sense (per industry), but how are the bubbles potentially connected to make systemic risk?
I’m kinda looking at it like this: per-industry, there is a local-minimum solution which is being exploited
For transportation, let’s call that “cars”. Scooters are a bet that if we climb out of that hole we might be able to get to an even lower minimum (but investor dollars are the fuel that’s burned on the search path).
So despite these walkabouts in the solution space (ie companies), there remains the local-minima solutions.
Now, for pension funds and what not other LPs that invest in VC firms, they have made commitments for returns to their share holders (eg retirees). I think it’s disingenuous to guarantee returns for 30 years (effectively what these fin products are), which also kinda sucks, but I don’t understand the problem outside of helping previous investors keep promises they weren’t able to make in the first place. That feels like a pyramid scheme.
Big, bad investment decisions have systemic effects.
In any case, the worry about scooters is overblown. They are an experiment. If it works, we gain a new transportation mode between walking (uncomfortable), cars (cause congestion) and mass transit (expensive).
I disagree that mass transit is expensive. If done well, it's the most economic mode of moving a massive amount of people over relatively large distances.
I also don't get what's wrong with walking. For me, personally, it's the best mode of transportation in the 15 - 30 minute range (granted, on a nice day in a city that's made for walking).
Capital intensive would have been more accurate. And in terms of maintenance, too, it’s more expensive than a road. Its economics only balance above a certain density threshold.
Sure, it's capital intensive. But that goes for all necessary infrastructure in dense, urban areas.
Shit needs to be channeled away and cleaned, electricity and networks need to be provided, water has to be served, etc.
Public transport is not different. And calculated on the amount of people it serves I'd argue that it's cheaper than cars. Especially if the externalities are factored in.
I'm not saying that scooters can't add something to the mix if done right. But the situation - as is - is not as bad as you make it out. Especially for cities that do it right.
I think there's a lot of truth to that view. But the way SV VCs and the current capitalist environment operate are a bit strange. I think that's what the article tries to shine a light on.
SV VC capitalism is extremely motivated to find new, nifty companies that will dominate and own new, nifty "tech" niches -- even if they're never profitable.
People care about this because the tech industry provides so much of the economy's growth. The underlying question is: why is so much cash lavished on businesses that, in general, are not profitable? What opportunities are being missed in the larger economy?
What is it about our overall system that means that companies that attack America's really vital problems (health care cost control/transparency, health care mistakes, health care inefficiency, public health problems, elementary education inefficiency, relatively high murder rates, high death rates from car accidents, infrastructure repair backlogs in big cities, the shortage of seats at the elitist colleges, opioid addiction and death) do not get this high level of funding?
> The VCs have an answer to all of these obvious drawbacks. "Genius is the only way I would describe it," Jordan Nof, an investment partner at Tusk Ventures who flew to Santa Monica, California, to convince Bird to take his money
Sounds like an over-the-top scene on a comedy show. Really
Sure, there's a lot wrong with Silicon Valley, but this article (I understand it's an opinion piece) is "an example of everything that's wrong" with Business Insider.
> And what about winter? Not much of a consideration in Santa Monica. But riding scooters in Chicago in February? Seems like a hazard.
> How about using a scooter to get anywhere that is more than a short distance away? An hour's commute? In the rain? Traveling with one or more friends? Carrying groceries? Taking your kids to soccer practice?
> Those considerations make scooters more of a novelty and a niche than something that every person will use regularly, like a car.
Aside from carrying groceries, all of these points are completely fruitless when talking about how these scooters could take of. All of the same can be said of bicycles yet bicycle commuting is growing year over year in metro hubs: https://bikeleague.org/commutingdata
Sure, but if you believe the scooter-sharing market will end up being dominated by a few companies (because consumers will prefer to use whichever company is most likely to have a scooter available wherever they are), then it's not unreasonable to bet on one particular scooter-sharing company ending up with a large percentage of that market.
> is that enough to justify a $2B valuation for a scooter-sharing startup?
For a 5% earnings yield, they would eventually need $100 million in income. There are probably $100 million in profits in New York and San Francisco alone. So yes, if this works that valuation seems appropriate.
If this is a profitable scheme (I don't think it is because of charging and theft issues), the competitors will move into the market as well (there is no moat). In big cities the market will be very segmented so they won't be able to reap all the profits, and the margins will be very thin due to intense competition.
>There are probably $100 million in profits in New York and San Francisco alone.
If we extend "San Francisco" to mean "Bay Area" and estimate that New York + Bay Area have a population of about 16M then if the company manages to get 5% of locals to become regular riders, $100M in annual profit is over $10 per regular rider per month. Assuming sufficient demand is there, consider the number of scooters that would need to be deployed and maintained to provided sufficient density to service this adoption level. Does that $100M in profit still seem probable in these two metros?
$100m profits in SF sounds optimistic. London's heavily subsidised cycle share scheme, for example, gets a little over 1m rides in peak months even with most of those rides being free.
I don't agree with the premise, but if it really is the case the valuation is too high, the "bad" investors who don't know what they're doing will lose money and thus have less influence on the markets in the future. It's important for the long term health of the investment ecosystem to have mechanisms to remove the market impacts of those who make bad decisions (and increase the influence of those making good decisions), and this is that mechanism.
It reminds me of the 90s when we has a constant stream of articles about people talking on cell phones in restaurants. Cell phones were a crisis that could destroy the restaurant industry. If we don’t ban them nobody will go out to dinner any more because who wants to eat dinner with everyone shouting around you?
Turned out to not be a problem.
People complain about dockless bikes and scooters on sidewalks. But its not like anyone is inconvenienced by them. You’ll get used to seeing them eventually.
I think large companies and industries outside of Silicon Valley waste money internally on projects that never see the light of day. I think one of the big differences with SV is it's all on show for the world to see exactly how the money is being bet.
A scooter sharing startup? Yeah, I'm pretty sceptical. But I too have seen projects at least as ridiculous funded by various companies I've worked for - honestly, I think it happens all the time. There's one in particular that I really want to name but sadly I just can't.
The difference, as you've said is that these things are not shown in the full light of day, and the amounts involved (particularly with respect to revenue and worth of companies) are often hard to determine at best for outsiders even for projects that are known about[1].
There are two main points in the article: 1) incredulity that the company is attracting investment, 2) incredulity that anyone thinks it's a good idea.
I don't know anything about the former, but I would think the right way to analyze it would be to do napkin math on what revenue yield might be.
I do know something about the latter. Bird positions itself as a last mile type opportunity; you take a bird two miles to get the train or bus you were always going to get; you take Bird if you're a college student and you need to get around campus. This dismissal of Bird is a little bit like "I own a car and I'm not a big drinker and I don't travel, why would I ever call an Uber?" No one gives half a shit if you'd call an Uber. The question is whether you have the imagination to suppose there is someone else who might call one. Then it ends with the laughable idea that "Scooters are cheap so if there actually is any use for them, which there isn't, people should just buy some". The whole point with Bird is that you don't need to worry about the scooter being stolen or parked. Most of the controversy around Bird is cities complaining that what's convenient for Bird users is inconvenient for anyone else -- it's hard to observe that while simultaneously complaining that Bird offers no convenience.
Disclaimer: I've only ridden a Bird once and I crashed it badly and got cuts up and down my leg and arm and ripped my pants. Apparently I don't have very good balance. Either way, Bird isn't for me. But I'm not an idiot watching dozens of people go by me on Birds and yelling at clouds about how they're making the wrong decision.
I personally would love to see more such companies (more innovation) but unfortunately Bird scooters seem to be having legal trouble in my city Milwaukee:
Writing from Oakland, where I have a suspicion that many of the scooters taken off San Francisco streets for their permit monitoriom have ended up.
Point being that there’s a LOT of these scooters around. I think they’re great. I keep wondering where the people complaining about the carelessly left scooters are living, because the majority of the scooters in town are dropped off considerately, and don’t take up more space than bikes.
I think the backlash against the scooters is driven by people who don’t like tech, and by people who believe transit solutions should be driven (and owned) by the government. The scooters solve a problem, are dirt cheap to use, are available to anyone with a phone, and are environmentally friendly. The externalities are nonzero but not larger than bikes. There’s a lot to like.
Lots of scooters in SJ also. They seem to attract a disparately minority crowd - which is great except for the normal distribution of assholes who decide it's cool to nearly run down your kids in a pedestrian only area or do stunts right in front of your face.
Given the lack of accountability in policing good behavior I can understand why people are against scooters.
Hindsight 20/20: there was a similar amount of hype around Segways. However, they are very expensive, large, and require training to use properly. These scooters are smaller, cheaper, and easier to use.
Either way, it’s silly to critique other people’s bets. You don’t know what they know and your money and reputation is not on the line. Does the valuation make sense? It doesn’t need to for anybody not involved in the transaction. Will the valuation need to make sense by the time/if the company goes public? Yes, much more so. But you could argue that even then public company valuations have no basis in reality right now.
> "Lime, along with its competitors Bird and Spin, all ultimately rely on Ninebot, a Chinese scooter company that has merged with Segway. Ninebot is backed by investors including Sequoia Capital, Xiaomi and ShunWei."
A company's value is still the present value of expected future cash flows to investors, right? For 2 billion and 15 yrs horizon, that's about 130 million in dividends a year. Profits still a bit higher to account for capital needs of the firm. That's quite the trajectory.
Another thought: are VCs and funds transparent about in what round they invest their own and the funds money? Can they sell their own series A investment in subsequent rounds with / without disclosure?
54 comments
[ 4.2 ms ] story [ 122 ms ] threadIf it's a stupid idea the VCs lose money. If a VC invests too often on stupid ideas they might go bust. Why should anyone else worry or care?
This may not be a huge deal if it's confined to the tech startup space. But these large investors are not putting all their eggs in one basket, they're spreading money out into many other industries like housing, financials, emerging markets, etc. If this large amount of money chasing returns has the same effect in these other industries, then we have the beginnings of systemic risk. This is now a very big deal for everyone.
I’m kinda looking at it like this: per-industry, there is a local-minimum solution which is being exploited
For transportation, let’s call that “cars”. Scooters are a bet that if we climb out of that hole we might be able to get to an even lower minimum (but investor dollars are the fuel that’s burned on the search path).
So despite these walkabouts in the solution space (ie companies), there remains the local-minima solutions.
Now, for pension funds and what not other LPs that invest in VC firms, they have made commitments for returns to their share holders (eg retirees). I think it’s disingenuous to guarantee returns for 30 years (effectively what these fin products are), which also kinda sucks, but I don’t understand the problem outside of helping previous investors keep promises they weren’t able to make in the first place. That feels like a pyramid scheme.
Big, bad investment decisions have systemic effects.
In any case, the worry about scooters is overblown. They are an experiment. If it works, we gain a new transportation mode between walking (uncomfortable), cars (cause congestion) and mass transit (expensive).
I also don't get what's wrong with walking. For me, personally, it's the best mode of transportation in the 15 - 30 minute range (granted, on a nice day in a city that's made for walking).
To each his own, I guess.
Capital intensive would have been more accurate. And in terms of maintenance, too, it’s more expensive than a road. Its economics only balance above a certain density threshold.
Shit needs to be channeled away and cleaned, electricity and networks need to be provided, water has to be served, etc.
Public transport is not different. And calculated on the amount of people it serves I'd argue that it's cheaper than cars. Especially if the externalities are factored in.
I'm not saying that scooters can't add something to the mix if done right. But the situation - as is - is not as bad as you make it out. Especially for cities that do it right.
Seems to me that scooters (or bikeshares etc) are highly complementary to mass transit, since you're never going to get rail lines everywhere.
Cities that aren’t big at all like Bern really show off the advantage of mass transit infrastructure.
I think there's a lot of truth to that view. But the way SV VCs and the current capitalist environment operate are a bit strange. I think that's what the article tries to shine a light on.
SV VC capitalism is extremely motivated to find new, nifty companies that will dominate and own new, nifty "tech" niches -- even if they're never profitable.
People care about this because the tech industry provides so much of the economy's growth. The underlying question is: why is so much cash lavished on businesses that, in general, are not profitable? What opportunities are being missed in the larger economy?
What is it about our overall system that means that companies that attack America's really vital problems (health care cost control/transparency, health care mistakes, health care inefficiency, public health problems, elementary education inefficiency, relatively high murder rates, high death rates from car accidents, infrastructure repair backlogs in big cities, the shortage of seats at the elitist colleges, opioid addiction and death) do not get this high level of funding?
Sounds like an over-the-top scene on a comedy show. Really
> And what about winter? Not much of a consideration in Santa Monica. But riding scooters in Chicago in February? Seems like a hazard.
> How about using a scooter to get anywhere that is more than a short distance away? An hour's commute? In the rain? Traveling with one or more friends? Carrying groceries? Taking your kids to soccer practice?
> Those considerations make scooters more of a novelty and a niche than something that every person will use regularly, like a car.
Aside from carrying groceries, all of these points are completely fruitless when talking about how these scooters could take of. All of the same can be said of bicycles yet bicycle commuting is growing year over year in metro hubs: https://bikeleague.org/commutingdata
The issue is the value of this particular scooter-sharing company here, not the value of the global scooter market.
For a 5% earnings yield, they would eventually need $100 million in income. There are probably $100 million in profits in New York and San Francisco alone. So yes, if this works that valuation seems appropriate.
Emphasis on “eventually”. A basic test for valuation sanity is “are the earnings this company would need for a zero-growth valuation possible?”
If we extend "San Francisco" to mean "Bay Area" and estimate that New York + Bay Area have a population of about 16M then if the company manages to get 5% of locals to become regular riders, $100M in annual profit is over $10 per regular rider per month. Assuming sufficient demand is there, consider the number of scooters that would need to be deployed and maintained to provided sufficient density to service this adoption level. Does that $100M in profit still seem probable in these two metros?
They could be especially handy for last mile between subway/light rail stations and homes/workplaces.
Turned out to not be a problem.
People complain about dockless bikes and scooters on sidewalks. But its not like anyone is inconvenienced by them. You’ll get used to seeing them eventually.
A scooter sharing startup? Yeah, I'm pretty sceptical. But I too have seen projects at least as ridiculous funded by various companies I've worked for - honestly, I think it happens all the time. There's one in particular that I really want to name but sadly I just can't.
The difference, as you've said is that these things are not shown in the full light of day, and the amounts involved (particularly with respect to revenue and worth of companies) are often hard to determine at best for outsiders even for projects that are known about[1].
[1]There are, of course, exceptions. This, recently posted by LGR, is a particularly bizarre example in many ways: https://www.youtube.com/watch?v=dv6UaHZxUys.*
I don't know anything about the former, but I would think the right way to analyze it would be to do napkin math on what revenue yield might be.
I do know something about the latter. Bird positions itself as a last mile type opportunity; you take a bird two miles to get the train or bus you were always going to get; you take Bird if you're a college student and you need to get around campus. This dismissal of Bird is a little bit like "I own a car and I'm not a big drinker and I don't travel, why would I ever call an Uber?" No one gives half a shit if you'd call an Uber. The question is whether you have the imagination to suppose there is someone else who might call one. Then it ends with the laughable idea that "Scooters are cheap so if there actually is any use for them, which there isn't, people should just buy some". The whole point with Bird is that you don't need to worry about the scooter being stolen or parked. Most of the controversy around Bird is cities complaining that what's convenient for Bird users is inconvenient for anyone else -- it's hard to observe that while simultaneously complaining that Bird offers no convenience.
Disclaimer: I've only ridden a Bird once and I crashed it badly and got cuts up and down my leg and arm and ripped my pants. Apparently I don't have very good balance. Either way, Bird isn't for me. But I'm not an idiot watching dozens of people go by me on Birds and yelling at clouds about how they're making the wrong decision.
Hope you rode it on the road and not the sidewalk like over 80% of these scooter riders in San Francisco were....
I've been on the receiving end, walking on the side-walk in downtown San Francisco and getting crashed-into by Bird and Lime riders routinely.
https://www.cbs58.com/news/bird-scooters-in-milwaukee-are-il...
Point being that there’s a LOT of these scooters around. I think they’re great. I keep wondering where the people complaining about the carelessly left scooters are living, because the majority of the scooters in town are dropped off considerately, and don’t take up more space than bikes.
I think the backlash against the scooters is driven by people who don’t like tech, and by people who believe transit solutions should be driven (and owned) by the government. The scooters solve a problem, are dirt cheap to use, are available to anyone with a phone, and are environmentally friendly. The externalities are nonzero but not larger than bikes. There’s a lot to like.
Given the lack of accountability in policing good behavior I can understand why people are against scooters.
Perhaps I'm showing my age, but wasn't the same said about Segway?
That aside, $2 B for a hardly new and hardly original idea / model?
Yeah. Something has gone sideways.
Segway is a great product, and they're very popular for city tours and other niche markets that can afford such a high price point.
Either way, it’s silly to critique other people’s bets. You don’t know what they know and your money and reputation is not on the line. Does the valuation make sense? It doesn’t need to for anybody not involved in the transaction. Will the valuation need to make sense by the time/if the company goes public? Yes, much more so. But you could argue that even then public company valuations have no basis in reality right now.
Again. Not a critique. Just stating a fact.
https://techcrunch.com/2018/05/01/lime-partners-with-segway-...
> "Lime, along with its competitors Bird and Spin, all ultimately rely on Ninebot, a Chinese scooter company that has merged with Segway. Ninebot is backed by investors including Sequoia Capital, Xiaomi and ShunWei."
Another thought: are VCs and funds transparent about in what round they invest their own and the funds money? Can they sell their own series A investment in subsequent rounds with / without disclosure?
Hope they don’t come back. Or if they do, they’re confined to the GoBike areas or a very limited number per company.