
Unit Economics (2015) - tosh
http://blog.samaltman.com/unit-economics
======
firasd
My general feeling about all the 'Uber-for-X'/food-delivery-startups that
launched circa 2015 and mostly fizzled out is that the bottom line was (a)
Unit Economics is an unrelenting problem, as Sam Altman describes here and (b)
'Total Addressable Market' is a bit of a vanity number.

(Of course there are other challenges faced by startups that interact with
customers in the physical world, like regulation, protectionism and so forth.)

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meetbryce
Do we really think our world of venture backed startups is significant enough
to directly impact inflation?

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joshmarlow
I've been trying to find a link to this, but I've been told something like 1
in 5 dollars in the US economy is tied into the startup ecosystem. So... I
would think so.

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gumby
That number sounds absurd, either in magnitude or definition, so I wouldn't
worry about finding it. You probably just misremembered.

In magnitude, total venture capital invested last year in the US was $84 Bn.
Just the top two PE firms combined exceed this number[2]. It's not a 1:1 match
but gives you order of magnitude. And that's just PE (since VC is a tiny
subset of PE): in the broader financial world, even considering the US alone,
these numbers are almost invisible. I have friends who started an investment
firm about 10 years ago with an AUM almost as large as the sum of the VC funds
(not merely amount invested) -- and I don't even know anybody at the _huge_
players.

In definition? Above is simply investment, what about revenues or headcount?
In revenues, merely the top 103 of the F500 add up to almost a trillion USD in
revenues last year. By contrast Uber's revenue was 37B and AirBNB was only 2.6
(and neither really count as startups). 37B will get on you the F100, but not
high. 2.6 does not.

In terms of headcount it's not even close.

It does look exciting from our perspective, since the giants of industry were
each startups at one point in time. But they all took years to really move the
needle, by which time they didn't look anything like startups.

[1] [https://www.prnewswire.com/news-releases/record-unicorn-
fina...](https://www.prnewswire.com/news-releases/record-unicorn-financings-
drove-2017-total-venture-capital-investments-to-84-billion-the-largest-amount-
since-dot-com-era-300579527.html)

[2]
[https://en.wikipedia.org/wiki/List_of_private_equity_firms](https://en.wikipedia.org/wiki/List_of_private_equity_firms)

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bungeecord
This period was largely enabled by near zero interest rates. Venture capital
firms like Thrive Capital in New York specialized in giving start ups with
upside down unit economics (see Oscar) capital to subsidize the consumer
journey. As this era comes to an end we should see a rise in inflation as an
after effect of the suppression of consumer prices by many venture backed
services.

~~~
arikr
According to [https://www.cnbc.com/2018/03/27/oscar-health-
raises-165-mill...](https://www.cnbc.com/2018/03/27/oscar-health-
raises-165-million-at-3-point-2-billion-alphabet-founders.html) Oscar is gross
margin profitable now?

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indescions_2018
On the opposite end of the spectrum are quasi-monopolistic, single product
biotech startups. Venture backed companies less than a few years old built
around a novel gene therapy "cure". The clinical success of which is
triggering a tidal wave of gargantuan merger activity with little sign of
cooling down.

Last week Novartis placed a $8.7B bid on AveXis. ($218 per share, an 88%
premium). Manufacturer of a miracle MS therapy for young children. A move that
could increase the price to over $2.5M per treatment.

When curing a disease with gene therapy is bad business

[https://www.technologyreview.com/s/610873/the-gene-
therapy-t...](https://www.technologyreview.com/s/610873/the-gene-therapy-that-
cures-bubble-boy-disease-isnt-worth-it-to-glaxo/)

Amazingly, as outlined in Goldman's note, that lifetime cash flow a pharma
developer relies on could be cut short. By "cured" patients no longer
requiring long term pharmaceutical therapy!

It makes the space very interesting to watch right now. Particularly as much
of the regulation centers upon health or geopolitical concerns. And not on
markets or affordability.

My guess is we will see the rise of behemoth-sized global vertically
integrated players. Controlling every step of the process. From Research to
therapy development. Through patient acquisition. And including the clinical
administration of one-shot "cures" in a futuristic branded setting.

Very much resembling something akin to Weyland Industries or Tyrell
Corporation. From hollywood sci-fi dreams.

~~~
aaavl2821
Until 5-10 years ago, pharma companies were vertically integrated players
doing everything from early stage research to commercialization. Then they
realized they were no good at research and stopped doing it, instead buying
companies like avexis to do research, and then using their commercial and clin
reg engines to get products to patients

No one knows whether the gene therapies will actually be one shot cures. we
know they'll be one shot, because the immune system will reject the viral
vectors after the first dose. We just don't know if they'll be curative. If
not, then the investments in gene therapy platforms will look quite different

