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Unit Economics (2015) (samaltman.com)
66 points by tosh 9 months ago | hide | past | web | favorite | 9 comments

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.)

>'Total Addressable Market' is a bit of a vanity number

I sort of agree. Of course if the TAM isn't very large that's a red flag. But usually TAM makes a lot of assumptions about addressability and ends up with metrics like "I just need to capture 1% of the Chinese market."

TAM is also very much dependent of price points. I'm part of the potential market for lots of things if they're cheap enough--which often means a price point below what it costs to deliver the product or service.

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

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.

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...

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

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.

According to https://www.cnbc.com/2018/03/27/oscar-health-raises-165-mill... Oscar is gross margin profitable now?

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


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.

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

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