
If Silicon Valley’s unicorn bubble bursts, what legacy will it leave? - m-i-l
https://www.theguardian.com/commentisfree/2019/feb/03/if-silicon-valleys-unicorn-bubble-bursts-what-legacy-will-it-leave
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Ben-G
Ugh. This article has virtually no content. Pretty similar to most other
shallow coverage of tech in mainstream media (eg NYT).

Same claims of being overvalued/never drawing a profit we’re made about FB,
Amazon, etc. too. And even if you actually believe current startups are
overvalued, at least provide some kind of analysis.

~~~
dehrmann
It also discounts how much companies like Uber and Airbnb have changed the way
people live their lives in big-dollar ways. Uber might be overvalued, but
there's still tremendous value in the leading global taxi company. Compare it
to what Amazon did; it's that level of impact.

~~~
lsc
I personally agree that uber has had the same _impact_ as amazon... I don't
have a car, and for the monthly TCO of a nice luxury car, I get driven
everywhere. It's pretty great.

The problem is twofold, for uber. First? they're losing money. If they raise
prices to solve that problem, it's possible that a lot of people like me
will... just buy cars again. I mean, I certainly prefer to be driven over
driving, but I'm pretty price sensitive on the subject. Much more price
sensitive than I am for most of the things I get from amazon.

Uber's second problem is that the difficult to compete with advantage they
have, that is, that they are global, only matters to me when I travel. When
I'm somewhere I've been a while, it totally makes sense to install the local
taxi apps and take what is best, and most of my car hire use is in places
where I am often enough to know the market. This week? Lyft is having a 25%
off sale, which makes them cheaper than uber even counting the uber loyalty
program and prepay discounts. Once the Lyft sale is up, I'll probably go back
to Uber.

I suppose both the problems uber has come down to the same thing; the only
difficult thing about replicating their business is that they are willing to
lose money doing it. They just don't have a whole lot of a moat.

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seibelj
There is a kernel of truth here, as not every IPO becomes an Amazon or Google
- just see Snapchat and Blue Apron. Some of these companies are overvalued
based on expected future profits that never materialize - in which case the
markets will stop pricing them at a premium.

What is different this time is that private companies can raise huge amounts
of capital that previously required being public. Early investors often cash
out their shares in new equity rounds, keeping pressure off the company to
IPO.

The deflation of Snapchat and Blue Apron stock is proof that the markets
eventually become rational. I don't see the need to be concerned.

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i_am_proteus
>And for that you need money, tons of it, which you have to spend like water
to undercut incumbent firms that you plan to disrupt and eliminate. In that
quest, you need to be both ruthless and profligate, because those incumbents
are normal firms that have to make profits – a tiresome obligation that does
not trouble you. So the deal you offer to investors is this: you give us
shedloads of money and stick with us until we get to be the winner that takes
all. And then you can cash out.

Reading between the lines: after the cash-out, the company is now vulnerable
to exactly the same tactics. However, not mentioned is that the "predatory"
pricing is a combination of (a) burning VC money to operate at a loss and (b)
operating more efficiently than the competition.

The market seems to be wisening up to startups that are only gaining market
share due to (a)[1]. Valuations and the payday from the cash-outs should
reflect this. Rather than a rupturing bubble, I expect a contraction,
especially as rates rise and VC cash flows less freely.

Some startups will end up being worthless, but a bunch will just end up being
worth less. As long as a startup has some benefit from (b), its raison d'etre
remains. And the ones with the strongest cases-- tech companies that bring
efficiency gains to the market-- will be absolutely fine.

[1][https://www.moviepass.com/](https://www.moviepass.com/)

~~~
dehrmann
And Snap. I still have anxiety that we're in a bubble (VC investment is up
200%+ since the 2008 peak), but seeing markets behave rationally around
stagnant and unsustainable businesses makes me think we've just gotten used to
looking at rapid growth and saying "bubble."

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malvosenior
This is an incredibly poorly written and just straight up incorrect article.
The entire premise is based on the idea that:

1\. Investors will cash out at IPO (very false).

2\. These unicorns are overvalued and playing just to get to IPO (also false).

Most VCs will hang on to significant equity post IPO and as evidenced by every
tech company ever, the IPO is just a start. Amazon wasn't profitable for years
but look at it now. This is how investing in innovation works, sadly the
Guardian has no clue as evidenced by this passage in particular:

 _" In that quest, you need to be both ruthless and profligate, because those
incumbents are normal firms that have to make profits – a tiresome obligation
that does not trouble you. So the deal you offer to investors is this: you
give us shedloads of money and stick with us until we get to be the winner
that takes all. And then you can cash out."_

EDIT: Also _yikes_ at the comments on this article. It looks like the Guardian
knows their audience because those are some super tech hostile readers!

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gumby
Props to the author for crediting Aileen Lee for coining the term.

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ohiovr
"But investors in Uber probably don’t care if it never makes a profit, so long
as it gets to an IPO that enables them to cash out with a big payoff."

-greater fool theory of investing

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starchild3001
I remember Google and Facebook valuations called a bubble many times around
the time of their IPOs. The truth: We never know (guess what? They weren't).

~~~
masonic
Facebook dropped almost in half from IPO to 3 months later.

