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Lyft prices IPO at top of range (techcrunch.com)
287 points by jkw 22 days ago | hide | past | web | favorite | 329 comments



A fun lession in dilution:

Logan Green and John Zimmer, the co-founders of Lyft, will each have about $500M in stock at $72.

(Edit: I miscalculated the holdings of the cofounders at $85M because I didn't account for their class B shares. However, I think my point still stands for the most part).

Google holds $900M in Lyft stock. A16Z holds $1B in Lyft stock. GM and Fidelity have $1.3B. Rakuten Europe has $2.2B.

$500M is certainly a life-changing outcome, but it's interesting how we value the capital that those companies put in far more than we value the years of work those two put in.

Edit 2: To be clear, this isn't a complaint in any way. What A16Z and Google and the rest did for Lyft is highly valuable and worthy of compensation.

This is simply a commentary on the relative value of capital vs labor.


It shows how important avoiding competition by being in an overlooked industry is, or selling quickly before it becomes a slug-it-out battle between well-capitalized growth companies.

By contrast, the 3 GitHub founders each took home about $1.25B from their $7.5B acquisition. Mark Zuckerburg's Facebook stake was worth about $20B in 2011, out of the roughly $85B market cap. Larry & Sergey own 11% of Google today, 15 years after it became a public company. Kevin Systrom netted about $400M from Instagram's $1B sale. The three YouTube founders took home around $700M of YouTube's $1.65B sale. Jan Koum and Brian Acton together took in about $11B of WhatsApp's $19B sale, including continued stock incentives (they may've forfeited some by departing FB early). AFAIK Markus Frind took home nearly all of the $575M that PlentyOfFish sold for.

I was also surprised at how low the founder ownership stakes were for Box (3% IIRC) and PayPal (Elon Musk was the largest founder shareholder at about $85M of the $1.5B purchase price). It really does pay to keep capital requirements low, profits high, and get on the hyper-growth curve before taking lots of capital rather than taking lots of capital so you can get on the hyper-growth curve.


The Atlassian founders have done a remarkable job of holding on to their large founder positions (17 years in). Together they still own about 54% of the value of the company post IPO.

Warren Buffett had over 25% of Berkshire Hathaway after roughly 43 years, until he began liquidating to give it away.

Michael Dell now owns 52% of the publicly traded Dell. That had been reduced to about 14% during the company's last term as a public entity (circa 2013), prior to the move to take it private. Through very clever maneuvering he now majority controls the public conglomerate of Dell + EMC + VMWare.

Another one is Larry Ellison, who still holds 30% of Oracle after 41 years.


I see a list of companies with low unit costs that used investor money to cover fixed cost and a (mostly implicit) list of companies with high unit costs that used investor money to buy service from subcontractors for resale with relatively little value-add. I suppose PayPal doesn't quite fit that bill (but I don't really have much of a mental model regarding PayPal - did they do sign-up gifts in the early days or is that my failing memory?)


"All happy companies are alike. Each unhappy company is unhappy in its own way."

The companies I mentioned are all alike in that they have nearly zero marginal cost of production; zero cost of distribution (they grew virally); early markets that could be reached with a product built only by the founders; and a lack of competition. Together, that means low costs and high profits, which means they didn't need to take much investment (Facebook is an exception, but they took it all on very advantageous terms), which means they had investors begging them to invest rather than them begging investors.

The ones that got diluted did so for different reasons. My understanding of PayPal is that it's because of the number of pivots and corporate restructurings they needed to do before finding product/market fit; they started as 2 separate companies (X.com and Confinity) in 1996, and didn't really take off until 1999. My understanding of Box is that they need a very expensive enterprise sales process to generate revenue - they don't get the viral growth of say Hotmail or even DropBox. Lyft got in a price war with Uber, and spent billions on ride subsidies to generate consumer demand and ensure they were price competitive.


If memory serves me correctly box had to do a down round[1]. Those are very unkind to the founders stakes.

1. https://www.cbinsights.com/research-downround-tracker


> It really does pay to keep capital requirements low, profits high, and get on the hyper-growth curve before taking lots of capital rather than taking lots of capital so you can get on the hyper-growth curve

How much of the capital raise decision due you feel falls into founder choice vs market or industry dynamics?


I'm not sure you can really separate them. Good founders pick their market carefully, and they also keep a very close eye on the market & industry dynamics when deciding when & whether to fundraise.

I know that I've decided not to fundraise until I have a pretty good idea who my market is and some proof points that they actually want my product, and I've chosen product ideas and target markets to make it feasible (if difficult, sigh) to test those assumptions without funding. Part of this is that I see my personal competitive advantages as technology & strategy, though, and I kinda suck at skills like hype and fundraising. Someone good at hoodwinking people like Elizabeth Holmes or Lucas Duplan might rationally choose to raise as much capital as possible first and then hire people to figure out the details ... but then again, it didn't exactly work out for either of them. (Actually, Steve Jobs and Jeff Bezos are good examples of people for whom this strategy did work out - but they actually were not diluted all that much, because the data they took to investors was such that they were able to raise that capital on advantageous terms.)

Brian Chesky talks in some interviews about how they initially planned to grow AirBnB organically and take only as much capital as needed to stay alive, but foreign competition that copied their idea and raised hundreds of millions forced their hand. At that point it didn't matter much, though, because they already had a profitable business. Joel Spolsky has also written about the decision process:

https://www.joelonsoftware.com/2010/02/14/raising-money-for-...


I don't think jobs and bezos can be classified as the hoodwkinking type, if anything it should be the former. Jobs had Wozniak and they did have initial demand for their computer. Granted I don't know much about Amazon's early history but bezos came out of de shaw, in sure he knows his shit


Sure, it "really does pay" so long as you can run a company lean into hypergrowth. Recall the number one reason startups fail is they run out of cash.


Isn’t that sort of like saying most humans die because their heart stops beating?


In a way.

But many startups run out of cash while still growing. It's more like dying from exhaustion while running faster and faster, not a frequent outcome.


And running faster and faster or dying is your job if you are raising money from institutional VCs in the first place.


It's more like saying most men who die in their 20's die due to excessive risk taking.


Alternately, one could translate that instead to mean the number one reason is unsustainable over-scaling too early is what causes failures, not the lack of cash.


>Recall the number one reason startups fail is they run out of cash.

Is it that or is it because a lot of start ups always want to "grow" at all cost? It is be possible to have a small-medium scale business and organically growing it out, but obviously if you take investor money, they want max return in shortest amount of time possible.


The VC curse: five funded startups becoming modestly profitable cannot compensate for five failures, but one stellar hypersuccess can compensate for nine duds and more.


You mean because they failed to create a profitable business surely?


Nope. I am talking about a startup capable of hypergrowth. These do not need to build profitable businesses to exit and they can and do run out of cash.


...because funders turn off the spigot.


> The three YouTube founders took home around $700M of YouTube's $1.65B sale.

$700 x 3 = $2.1B. I guess one of these numbers is wrong.


GP was saying that the three founders split $700M between them.

If it had said "each took home" then your interpretation would have been correct.


The poster didn't say $700M each.


I don't think OP mentioned each


This is an interesting take on it. Thanks.


This article in NYT puts Green and Zimmer's value much higher, at $603 and $416 million, respectively: https://www.nytimes.com/interactive/2019/business/dealbook/i... .

And considering Lyft was/is a hugely capital intensive business that is still losing billions, I'm not surprised the capital investors came out with more equity in this one.


This is incorrect. Green and Zimmer have moved material amounts of shares to trusts, other vehicles, etc. If you accumulate their owned or controlled shares, Green is around 500MM and Zimmer around 350MM

https://www.businessinsider.com/lyft-ipo-paying-off-big-time...


I got the numbers from the S1, which is supposed to include all beneficial trusts. I may have read it wrong though.


The S-1 is a bit opaque as it doesn't list out Class B ownership in the table. Lyft class B's are convertible to Class A at any time. If you follow to the table footnote for Green's entry you'll see:

"Consists of (i) 4,663,809 shares of Class B common stock held by El Trust dated August 3, 2015, for which Mr. Green serves as trustee, (ii) 675,564 shares of Class B common stock held by The Green 2014 Irrevocable Trust dated June 12, 2014, for which Mr. Zimmer serves as trustee, (iii) 360,979 shares of Class B common stock held by The Logan Green 2016 Annuity Trust, for which Mr. Green serves as trustee, (iv) 360,979 shares of Class B common stock held by The Eva Green 2016 Annuity Trust, for which Mr. Green’s spouse serves as trustee, (v) shares of Class B common stock issued pursuant to the Founder Option Net Exercises and (vi) 1,180,329 shares of Class A common stock underlying RSUs for which the time-based vesting condition would be satisfied within 60 days of December 31, 2018 and assuming the satisfaction of the performance-based vesting condition. Subsequent to December 31, 2018, a portion of the shares described in this footnote were transferred between the trusts described in this footnote for estate planning purposes."


If the founders have $1B between the two, then employee #1 would have (guesstimating) on the order of $10M, assuming the standard employee#1 == 1%. Of course there's the initial investor share and option pool to account for, but we're still in the right ballpark.

Employee #20, who joined maybe a few months in, and then put in seven years, is gonna be at order of magnitude down, $1M. Employee #50, who put in six years, is the hundred thousands, and we keep going down.

Yeah, fantastic money, but pales compared to founders.

Lesson: don't not be a founder.


This math feels off. It’s hard to imagine employee #20 making “only $1m” when there are engineers at Lyft getting $1m+ equity packages as offers today. Maybe their initial grant would be worth that much but for sure there would be a large number of subsequent grants since joining at #20.


$1m+ equity offers today? Hmm... that sounds pretty high.


Not unsurprising, 1M equity over 4 years at today’s valuation is fairly common.


Lesson 2: don't not be successful as a founder.


Completely wrong assumptions.


Which assumption is wrong? Employee #1 @ 1% equity is very common. You very quickly get into .5% and .1% after just a few employees.


> far more than we value the years of work those two put in.

They did all the work, or they hired employees to do lots of it with the capital?


That's fair. How do we figure out the total employee holdings?


The employees got paid in cash, (largely) not stock, because that's the deal they took.

Equity investors exist because most people would rather work for cash than for stock. Typically, the way the money flows is that college endowments & pension funds put cash into VC funds in exchange for equity; VC funds put cash into startups in exchange for equity; startups use that cash to pay salaries; and employees who receive those salaries spend a portion on college tuition, gifts to their alma mater, retirement savings, etc. that then gets recycled back into institutional finance. If the startup ends up being worth more than the money put in (either because they turn a profit or because they can convince some greater sucker to take that equity off their hands), the excess is returned to the VC fund in proportion to their ownership stake & liquidation preferences, who take 20% for their GPs and distribute the rest of it back to their LPs, who use it to fund scholarships or buy a new building or pay for your parents' retirement.

If you can convince employees to work for you for equity, you don't need VCs at all: you give them shares, and when the company has a liquidity event, everybody benefits. Most people don't take that bargain, though, because they don't have confidence that the equity will be worth anything and need to eat in the meantime. The premium VCs get is precisely because people are risk averse. If all companies were public and everyone were willing to work for equity, that premium would be arbitraged down to nearly nothing, but then we'd probably be complaining about how certain unscrupulous actors managed to convince people to accept equity of their worthless company and now those people can't eat because they were bilked out of just compensation for their labor. (The crypto economy basically functions like this, with various tokens acting as pseudo-equity in the "economy" that grows in value as the surrounding ecosystem grows and these tokens being freely tradeable on exchanges - and it suffers from precisely this failure mode, where it turns out that unforgeable tokens != unbreakable promises.)


> Most people don't take that bargain, though, because they don't have confidence that the equity will be worth anything and need to eat in the meantime.

No, I think the reason is different, and it's quite rational. Diversification. VCs invest in 10(0)s of startups, but an employee is only employed by one, and his/her job depends on the success of that one startup. It makes sense to take whatever money you can, and invest it in other start-ups (or equity markets).

It would be much more fair of course if "normal" people were able to invest in start-ups, or at least in VCs. (AFAIK currently only "sophisticated investors" can.)


Also, you can't work for just equity in California any more... you have to paid at least minimum wage now, unless you are a founder.


But isn't labor a commodity and ground breaking innovation not?


How many startups are in the latest YC batch? An enormous amount compared to previous batches. “Innovation” is a commodity because it’s just become product market fit testing through brute force.


ya, but testing for product-market fit is much more uncertain than buying/providing labor. It's still harder


The employees aren't responsible for any innovation?


Barring corruption, compensation is usually commensurate with how much risk your capital takes.


I'm not sure that dilution is really the word you're going for here. Dilution implies / has the connotation that it is foisted upon you unwillingly and unknowingly, as in employees "get" diluted.

The founders chose to get diluted at each round. And you're ignoring that at each "dilution", the value went up. The company didn't start at $24bn and at each round the founders got their value diluted, down to around a mere $500mm. The founders started at 100% of $0 and got "diluted" up to $500mm each.

I'd call it a fun lesson in meteoric wealth growth for 2 guys starting with just an idea. $500mm/7yrs = $70mm/year. That's remarkable.


They earned less than any of the top 20 hedge fund managers: https://www.forbes.com/hedge-fund-managers/list/#tab:overall

top pay : $1.7b for 1 year for #1 spot to $100m for spot #20.


They also earned less than The Rock. They earned less than Messi. They earned less than Mayweather in one single fight a couple of years ago.

For the hedge fund managers note that this is not just "pay", it includes as well the returns on their own invested fortunes. The #1 in the list is not even working (he's 80 and he retired 10 years ago). They may make billions, but they also may lose billions: since 2011, John Paulson's estimated wealth is down from $15bn to $5bn.


One other perspective: Each of those companies--Google, A16Z, GM & Fidelity, Rakuten--are comprised of, what?, tens of thousands of shareholders. If we include mutual and indexed funds, and the retail investors who buy in to those, then probably millions of shareholders.

Versus two.


A fun lesson in taking other peoples money?

The capital is arguably more valuable in this case. Lyft is just a copycat of Uber, what did the founders bring to the table?

I'm playing devil's advocate [more than] a bit. I'm happy for Green and Zimmer, and they are both making FU money from this so I'm not sure what the complaint is.


I agree with your devil's advocate.

Not to downplay Lyft, though... Lyft started in 2007, two years before Uber — and so was doing ridesharing beforehand. Uber snuck in with a taxi model that was legally gray which opened the doors.


So basically it's about about execution, not timing.


No complaint, just a commentary on the value of capital vs labor.


That's a bit glib, though. They are the 2nd mover in a capital intensive business. Kalanick did better, in a pretty direct comparison. Anyway, I'll drop it. They have set up their families for centuries, build a huge company in extraordinary little time, made a lot of their employees rich, made life a lot better for people trying to hail a cab, and I don't want to rain on their well-deserved parade today.


A $500 million payday for building a company that loses $1 billion a year sounds like a pretty freakin' great outcome to me.


A masterful exercise in hype. Lyft and Uber are PR companies in the personal transportation domain.


They put that work in to create a company that loses nearly a billion dollars a year, so it kind of make sense to me that the people throwing money on this bonfire should be valued higher than the ones who lit the match.


over a decade on this site i've watched comments from people being cynical about the value of Google, Facebook[0], Amazon, Uber and many others

At what point of seeing this same story over and over again and realising that funding growth is a viable strategy do the cynics just let go?

[0] heaven forbid you ever take investment advice from dhh https://signalvnoise.com/posts/2585-facebook-is-not-worth-33...


The fact that the Amazon, Google and Facebook stories are now so well internalized by the general public is what makes investing in Lift dangerous. The criticism back then was wrong - but now it is too easy to dismiss any criticism. The danger is that Lyft and Uber (and some other unicorns) are just cargo cults - copying the visible strategy of rapid growth but lacking ingredients that are more subtle but nevertheless necessary for sustained business.


Facebook and Google were both profitable when they went public, which is a big difference between Uber and Lyft today. They were merely not as profitable as today.


The sites you mention (aside from Uber, which does not make a profit) found their way to profitability by building out and then cashing in from an apparatus of mass surveillance unparalleled in human experience.

So if I'm critical about the "grow while burning money" strategy, it's because I've seen the damage the eventual successful business model does to civil society. It's a bait and switch that we don't have to continue falling for.


And yet, the mechanisms at play make it so that this system survives and thrives. How would you end it?


Tax the wealth and put it to productive use that helps a broader group of people (mass transit, health care, education, climate mitigation).


The work they put in still can't solve the constant need for cash to keep the lights on, so?


That's why if they're smart they'll liquidate like andreesen and cuban. The company may be worth a fraction of this.


I'm not denying that the capital has a ton of value for the company. Without it the company would have failed long ago.

But I'm just making a commentary on the relative value of the capital vs. the work.


Two people. Working for less than 10 years each. Spending billions of dollars of other people’s money.

Speaking as a Founder myself.... Honestly their stake is too damn high. They didn’t do 0.001% of the work required to build the company. Could you make the case they even had some unique skill or insight that meant they were providing even 1% of the business value? They were just first.

And they weren’t even the first with the idea of how to build a “Lyft”. They were just the first on this particular cap table.


They also owned the company, this means something.


The capital invested represents the accumulated work of a lot of other people.


And capital is acquired for free?

Think it this way, the work of founders which got them their share of capital will be used as investment in some other company.

Or are you trying to claim the capital invested in this company by investors was acquired for free without putting in any work or risk?


Capital is important because it represents work that has already been done. What's always disheartening, though, is that capital is always raised from private investors and they then use the stock market to cash out. The stock market was invented to raise that capital in the first place which gives the public an opportunity to see these kind of gains. Now there's just no chance.


It’s much more difficult and expensive to list on a public exchange than it is to raise private capital. Also the SEC kinda forbids this situation to further the aim of “protecting mom and pop investors.”


I'm confident these guys already cashed out a large fraction of their holdings in prior rounds.


Sure but let's assume they already cashed out even $85M. They still made way less than the investors. So we still value the investors money a lot more than the founder's time.


What ROI got those investors compared to a typical investment?

How much did those founders get for their time compared to the average person selling their time?


Of course they made less than investors. Capital is worth a LOT more than time and energy and ideas.


And there are a bunch of suckers who put in X% the work that each cofounder put in and are getting (X/1000)% of that 500M. It's because they assumed 1000x less risk presumably.


Actually, what is the 1000x risk for SV startup founders? They are not risking their own money and apparently not even their reputation (failed VC-backed founders tend to be able to get VC capital again) so on the face their risk is just to lose a job, same as for any other employee.


Yeah exactly. Many of these founders are on their 2nd startup and are already millionaires. Some poor nth employee is in fact risking a lot by e.g. quitting their nice life in a city by relocating, or quitting a promising career. Yet the founders' massively disporportionate ownership is chucked off to "risk".

I for one hope for market forces that will rebalance these discrepancies. Talented 1st employee shouldering most of the technical brunt taking <1% plus dilution is selling oneself to the dogs.


What you're risking is your health, physical and mental.

Being a founder is a hugely stressful job, and everyone I've seen spend 5 years as a founder has aged more like 10 years in that time.


That's how capitalism works?


and you don't see a problem with that?


Unless I’m mistaken Lyft came after Uber right? They built a good product but nothing unique other than being “not-Uber.” In that sense you can think of Green and Zimmer as being hired by their investors to produce an alternate Uber. They executed very well against their task and everyone got a nice payday for it.


As far as I can recall, Uber used to be a service where you could rent professional drivers to drive you around with big black SUVs, and Lyft started ride-sharing, which Uber shortly followed with Uber X.


I'm confused how anybody can pitch "personal net worth went from negligible to half a billion" as a negative thing. When they started they had 100% of nothing. Now they have $500m. Wow.


That capital paid for all the labor of the engineers and ops folks that built the company and all the promotions to build the buy side and sell side of a two sided market place. It's done more than either of those two have done. It's not even like they brought much creativity and gumption to the table like Kalanick. They just followed the Uber and got lucky when the Uber went through a bad year.


Huge win for A16Z. Logan and John ended up owning the same amount of shares each all the way through the rounds, is that typical?


You don't lose shares with funding rounds... new shares get created, thus lowering the percentage ownership of everybody.


>[...] but it's interesting how we value the capital that those companies put in far more than we value the years of work those two put in.

"We" value taking risks more than working. An investor in Lyft carries much more risk than the founders - who would quickly find new jobs. But if the company goes bust the investor's money is gone.


They put in capital, true, but it wouldn’t be available unless this was the most likely fit for their investment profile, vs say low yield treasuries. The investors are just playing maximization game and have much more security than the lyft founders even if they lose ecery cent.

We lionize the “risk” of VC investors far too much.


Also, let’s get real: VC investors are rich. They were rich before the investment, and they will be rich afterwards, regardless of the outcome. Maybe they will be ultra-rich after an exit, or they’ll be simply super-rich after a failure. Either way, they are already in the “set for life no matter what” category, so really, are they taking that much of a personal risk?


That's what I mean, the investors are so rich, it makes complete sense to take a portion of their riches and invest in high risk high reward states where most of the outcomes will be every cent is lost. It's not only set for life type money, but so much money that hiring teams of people to figure out how to even invest the proceeds in a rational way, of which VCs are just one subset of the team (outsourced, insourced, or otherwise).


The lesson here is that the business was very capital-intensive. In these situations, an overcapitalizdd company beats an undercapitalized one. The founders could have kept a larger share of a much smaller pie.


It's the Golden Rule: He who has the gold makes the rules!


"This is simply a commentary on the relative value of capital vs labor" - what this capital was spent on? Overwhelmingly on labour I guess.


>how we value the capital

Who is "we"? The founders are who agreed to those terms. It's how they valued the capital.


This is a winning horse. But investors also back losers. On average they hope to come out on top.


Yes, it is fascinating.

I would say this is more related to cultural understanding and values, than how to just do something profitable.

The cognitive dissonance comes from valuing work, and getting affirmation from others that your work was worth more because of your efforts.

But this has nothing to do with math and accounting.


Uber and Lyft IPOs look to me like they are legal ponzy schemes.

Both companies lose a crazy amount of money, they have close to zero moat, customers have no loyalty and will go to another rideshare service if it is one dollar cheaper. The fundamentals don't make any sense, but still we read everywhere that Lyft and Uber at those prices make sense.

The VCs and founders decided to get out while the market is up (and while they still can) and they will sell their shares to the "dumb" public that will buy into another overhyped tech stocks without really understanding the fundamentals. The employees cannot sell before 6 months, they are locked out.

After a couple weeks the market will probably realize this stock is overvalued and it will start to go down, but at that point all the big fishes will be out already and who will hold those toxic assets? individual investors and employees that cannot yet sell.


Partly, it's just that everything is priced relative to the current market, which atm is cash rich and opportunity poor.

Uber and Lyft are an optimistic bet. They can't generate profits right now but (Uber especially) they might find a way. Self driving cars are otw. They could be in position for that. Regulation is otw. This could give them a moat.

..also efficiency, I suppose. A lot of recent "marketplace" successes (YouTube rev-share, app stores, steam, iTunes...) are built on thick margins. Uber and Lyft take 20-25%. Uber & Lyft's main job is software and software scales. There's no inherent reason preventing them from operating within a profit producing budget, especially if growth-at-all-costs ends. It'd be hard to justify the share price though.

Remember that FB went public well before the ad business turned into the money machine it became.

Not saying it's a good investment. I suspect it's not, but there aren't many good investments around. etc.


Aside:

> but there aren't many good investments around. etc.

Like, can we talk about this just a sec? I feel this too, that there just isn't a lot of room left in the economy. But, it just feels like that is crazy, right?

There is all this money, more than ever before. There is all this technology, and it's the best that has ever been out there. There is all this education and learning, we're better at teaching people than we've ever been. And there are all these people, nearly eight billion of us. Things, objectively, have never been better!

So, how can we be running out of good investments? It just feels like I'm nutz here. One one hand, we have all this potential energy, but on the other, there is just no where for the kinetic energy to go. Humans aren't just boulders on hill sides, we don't tend to sit still, we get moving on our own.

Why do I feel like I'm missing something big?


> So, how can we be running out of good investments? It just feels like I'm nutz here. One one hand, we have all this potential energy, but on the other, there is just no where for the kinetic energy to go. Humans aren't just boulders on hill sides, we don't tend to sit still, we get moving on our own.

There's a lot of factors but the big ones I've noticed are healthcare costs/risks and overall income inequality drastically reducing the pool of potential entrepreneurs. It's less a problem for software engineers but it's a significant limiting factor for any venture that's applying software to specific industries (think transportation, agriculture, manufacturing, etc) when founders can't get their heads above water long enough to consider a startup.

Zoning laws are also slowing growth in many cities so a lot of money that would normally be chasing low risk returns in real estate has to move up the ladder. The number of things to invest into without relying on a bubble just can't keep up with the amount of money coming in from fiscal policy and foreign investors.


The US IT industry (as a lay person) is the only one where a startup can feasibly grow quickly enough to justify the investment.

Construction in the US is minimal. The initial costs of any industry with production, manufacturing are immense. Healthcare is one area where there is space for clear improvement, but being a rigid to change as it is, healthcare startups really struggle to penetrate the industry.

You may invest in the service / food industry, but it doesn't seem to be as hyper-scaling friendly as it used to be. I do not foresee any trend since Starbucks that has been able to take a country by storm. You can invest in smaller restaurants, but that is more of a small business investment than anything resembling stock, so good luck making it a liquid asset, even if successful.

Also, a lot of investments are mislabeled (often purposely) as tech startups but are actually some thing else. Uber, Lyft, Airbnb, Coursera, Udacity, Instacart, Juul, WeWork, and the like are to me, products from a different industry all the together. The tech aspect of their business does not influence their success as much as it may seem.


I don't get the self-driving car move for Uber, et al. Instead of letting drivers use their own cars or making money on loans they will all of a sudden have to buy tens of thousands of cars, maintain them and replace them every 5ish years (unless they get yet another exemption from taxi regulation commissions).


Why would anybody want to invest money into a stock that has never been profitable and has no future indication of ever reaching profit? It really just sounds like speculation based on nothing. This reminds me of the bitcoin market.


I fully agree on Lyft and Uber and I think the public is getting duped on this IPO. Its worth pointing out though, that people said the same thing about Amazon's IPO.


To be fair Amazon is profitable, but their stock is extremely inflated by over speculation. The idea is still the same. Dump cash into the stock and hope others do the same driving up the price of the stock in the hopes that you can drop it before the bubble pops.


Amazon wasn't profitable for over a decade after their IPO.


Amazon isn't profitable by design. Lyft and Uber aren't profitable because of economics.


what does that statement even mean? Pick one {Lyft, Uber} and cross out the other one because it goes bankrupt. Now there's way less overhead per ride because you don't have to aggressively market, and your only costs are infra, insurance, and driver filtering, increase your fares by a bit (because less competition) and drop your take from the drivers to make them happy. Do you not then see this as a money printing machine?


The situation is basically this:

(1) Uber and Lyft have worse unit economics than a taxi company because taxi companies leverage some little bits of scale by pooling fleet ownership costs and insurance.

(2) Uber and Lyft are currently pricing rides at about 66% of what it costs to provide.

(3) There's no loyalty.

(4) There's no indication that people are willing to pay what it costs to provide their service, doubly so if its actually more expensive than a taxi due to efficiencies stated in [1].

(5) Self-driving cars are a ruse in this context; many companies are developing them at the same time and when one gets them, shortly after, the other will too. And so will all the car companies itching to get into ridesharing (I'm looking at you, Tesla).

To my knowledge, while Amazon wasn't turning a profit in the early days, re-investing in growth, they weren't selling you $20 bills for $12 in the hopes someday "drones" would allow them to turn a profit.


Amazon made over $10b in profit in 2018.


They have been famous for pushing growth over turning a profit. Thy could have scaled back their growth and probably shown profits much earlier.


We have absolutely no idea what would have happened to Amazon if they prioritized profit over growth in the early years. There's no guarantee they'd be a successful company now in that alternative future. Undercutting the competition on prices to increase sales volume in the early years was key to their success.


100%. Wittingly or unwittingly, it was the right call for them, and pulled a ton of air out of the room for competitors.


> but their stock is extremely inflated by over speculation

By that indicator?


> This reminds me of the bitcoin market.

This is way more like the status quo of private equity. A bunch of people throwing money at negative cashflow businesses. I wonder if this period of time in history will be looked at as ridiculous.

Another poster in this chain made a good point, however - due to very low taxes, people have a lot of cash and there is just finite opportunity currently.


I think the key is to establish an unassailable logistics network. Once enough drivers, passengers, and other users (delivery, etc.) use either service, it becomes a pretty big moat.

If my driver is closer, and I have scale to keep them busy, you'll have no way to compete without dumping in those same millions.

It's how Amazon worked.


How is this a moat? Most drivers and passengers already use both services and switch between them based on price. They have no loyalty and they don't need their friends and family to move with them to another service, they just move. I could see at some point there will be an Orbits like service that finds you the cheapest rate among multiple services.


Amusingly, Google already is the Orbitz for Lyft/Uber. Google Maps shows the prices of both services when you get directions to a destination and click the dedicated Rideshare route button (up there with the Driving, Public Transit, Walking, and Bicycling buttons). Any competitor wanting to get its foot in the door would only need to pay Google enough money to get itself listed there (which is to say, Google can enter this market for free whenever it wants to). Not to mention the sort of squeeze Google could put on Lyft/Uber via their Maps API costs if it wanted to slyly push those two into unprofitablity.


> Any competitor wanting to get its foot in the door would only need to pay Google enough money

Or indeed Google develops a competitor themselves if Uber and Lyft gain 9-digit valuations. It could do that in less than a year and for a few hundred millions at most. Taking a page out of Apple's book of vertical integration and squashing popular services with in-house offerings.


> Any competitor wanting to get its foot in the door would only need to pay Google enough money to get itself listed there (which is to say, Google can enter this market for free whenever it wants to). N

That assumes that the feature in Maps not only exists but is widely used by consumers in preference to individual service apps; my impression is that that is not really the case.


My impression is the opposite, so in the absence of harder evidence we're at an impasse. But even if Google Maps isn't widely used, Google could trivially spend the cash to market the feature if it wished to, or hell, just pop up an alert upon opening the Lyft or Uber app on Android that says "Did you know that you can compare ride-sharing prices across all services in your area via Google Maps? Click here to try it!" (in the same way that visiting any Google property on a non-Google browser pesters the user into downloading Chrome). Google already owns the platform, Google already owns the maps data, Google already owns the users.


That’s a compelling reason to use non-Google apps. Don’t they have enough hooks in my data already? I still think you might be right ultimately since most people prioritize price and convenience over their long term best interests.


Having a significant leader advantage and on a market that takes time & a lot of money to develop is one of the more classic “moats” in the infrastructure game. Anyone can lay tons of fiber cable, anyone can build railroads, how are those moats? For the same reason, including the legislation you can nudge along the way to even more establish an unmovable position


Yes, let's talk about the unassailable infrastructure that Lyft and Uber have built. It would help for you to name such things that they have built, since they have not built fiber or railroads. Is it the software? Because it seems there are dozens of locale-specific services that work the same way. As near as I can tell, the only thing they have right now is brand recognition. That is a moat, but hardly unassailable if someone brings more pricing transparency to the entire market.


>Yes, let's talk about the unassailable infrastructure that Lyft and Uber have built

It's a two sided market that takes a significant investment to create. Yes, Google can add G-Car to maps, but where are the drivers coming from? They're not going to switch unless they can expect more income than from Lyft/Uber. Google can't provide that without investing a lot of money in incentives.

The best analog to Lyft/Uber is Mastercard/Visa. It's theoretically easy to enter the market, but in practice it's going to be very difficult to develop your own two sided marketplace going against the incumbent competitors.


Mastercard/Visa is a veritable fortress compared to Lyft/Uber. The plethora of locale-specific competitors proves that. When you go to Austin, you won't find some local credit card network that no one has ever heard of.


Are you being sarcastic? No one can just throw down Rail or cable, that's what doomed Google fiber and Cali HSR and many other projects. There is no moat with Lyft because any user could easily switch to another ride hailing app.


Yeah I was being sarcastic. My point is that theres a limited technical challenges on the scale of feasibility ("anyone _can_ build...). The big challenges are on the cost/return side of things. Google Fiber faced tremendous pressure for if it was responsible spending or not, which they ultimately decided it was not. So there's good skepticism here about why the valuation would be that high, but I think its a stretch to say they don't have a moat and they're doomed / you cant build a successful company that way. AT&T / Verizon seem very comparable (they don't have a technology moat, they have a first-mover advantage which has been stable for a long time).


I agree I don't understand how a company seemingly built on backwards business fundamentals can be valued so highly, but I disagree it will be only a couple of weeks before the market adjusts the price accordingly. I think it will take much longer than that, probably closer to a couple of years of a slow downward trend with lots of volatile spikes.


I would expect the same, at least for Lyft.

Uber is a bit of a different beast. It's valuated much higher, and it banked a lot of that valuation (in my perception at least) on the perspective of getting self-developed fully automated driving capability to the market and thus having an edge (and an actual moat) to be used to finally reach profitability by eliminating the costly drivers.

Thus I would expect its valuation to stay high for a while, but drop sharply as soon as the "fully automated driving is right around the corner" bubble pops for real.


Typically the VCs and founders are locked up along with the employees aside from a small percentage of shares the biggest shareholders sell at IPO. Is that different here?


I'd purchase up front and ride the initial wave until the collapse if I thought it would last more than a day or two.

I think we'll see facebook similar treatment, comes out to immediately drop


>individual investors and employees that cannot yet sell.

Don't forget government pension programs that are some of the most mismanaged portfolios around.


I was kind of hoping the ipo would tank cause I can't help feeling this is going to end badly for the retail investors who once again end up holding the shit sack. A successful ipo just goes to show that the fat cat capitalists have once again managed to game the system


> like they are legal ponzy schemes

1. Could you please not call something a ponzi scheme, just because it looks scammy? This seems to be a trend that has caught on during the crypto-bubble (where admittedly there where a lot of ponzi schemes), but not every scam is a ponzi scheme.

2. Whoever trades on the stock market knows the risks.

Whether the pre-IPO VC funding cycle is a ponzi scheme is another topic...


I would argue that any investment scam in which money from new investors gives liquidity to old investors, resembles a ponzi scheme.


Which would be true for any IPO?


Only the ones that never make anywhere near to a profit.


I would qualify that as a situation that repeats itself.

If money from new investors is repeatedly used to pay old investors, it resembles a ponzi scheme.


only if the IPO price is completely unrelated to the fundamentals, like it is for Lyft currently.

If it is unrelated to the fundamentals, you are in full speculation territory and the only goal buying the stock is to sell it eventually to a bigger fool that will pay more for it.


The last big downturn was a decade ago. Any traders age 18-28 have never seen a big drop and likely don't comprehend the extent of the risks IMO.


I will have to get a driver's license if this thing crashes. I am part of the problem why Lyft and Uber lose so much money. I have been so lucky that Uber and Lyft became ubiquitous just when I was about to get a DL. I decided against the headache and costs of maintaining my own car. Never got a DL and kept using ride sharing services everywhere. Also, kept switching between Uber and Lyft based on who is offering me discounts that week. Seems like my VC funded lifestyle will come to an end if some new investors don't buy the ride sharing story.


I hate driving, and I never bothered with getting the driver's license. Eventually, it got to a point where I just felt limited and embarrassed by not having a driver's license, and went took a few classes and dealt with it.

I was 24 when I got my driver's license and I've probably driven a dozen times total since then (rental cars in Hawaii, Colorado, or LA mostly). It's really easy, and I feel a lot better for having that ability. I'm 100% glad I did it and added that valuable life skill to my arsenal, despite still hating driving and still almost never using it.

I recommend it.


There are a lot of things you can't do if you can't drive. I was just in Nevada and Death Valley on vacation a few weeks ago. Utterly undoable without either yourself or a companion driving.

I suppose you can just shrug and be OK with pretty much staying in or near cities but that seems to close off a lot of options.

I also couldn't deal with day-to-day things without a car but that's at least somewhat manageable depending upon where you live and work.

ADDED: I'm not a typical Silicon Valley developer to be sure, but I couldn't even have done my first job absent a drivers license. It may be worth asking if you want to be employable outside of certain bubbles where you'll be the weird person who always needs a ride because they can't drive even though they don't have a disability.


> It may be worth asking if you want to be employable outside of certain bubbles where you'll be the weird person who always needs a ride because they can't drive even though they don't have a disability.

You say that as if only a tiny minority of jobs will let you get by without a car. Most white collar jobs will not require you to drive anywhere.


Leaving aside commuting; we'll assume you and friends/partner are fine with only living, working, and socializing where you can easily get around by public transit, walking, bike, Uber now and then and restricting your choices accordingly.

Every half-way senior engineer I know (and I'm not even talking sales, system engineers/solution architects, product managers, and so forth) routinely travel to customer sites or branch locations that require driving under at least some circumstances.

Uber/Lyft have absolutely helped with some edge cases. I was at a work event just a couple weeks ago where my default in the past would have been to rent a car and I didn't because, while the venue was about an hour drive from the airport, I didn't actually need to drive once I go there.

It is absolutely the expectation at most jobs that you can drive if need be.


I have never once in my career felt like I was held back by not having a car. The only occasion where driving was more convenient was during rare business trips where and we'd simply get a rental car.

If you're a white collar worker in NYC or SF, you're more likely than not not to own a car, or if you do, to use it almost exclusively for personal reasons and not for work reasons.


NYC in particular is something of an outlier. In any case, this thread was about not having a drivers license, i.e. unable to rent a car.

As a counterpoint, I've frequently had to drive to customers, job sites, etc. but then I mostly haven't lived or worked in a city.


I would say that suburban / rural America is more of the outlier. Most of the world's white collar workers work in transit-accessible cities, and the rest of the world is much less car-driven than the United States.

But yes, I'm in agreement with you that the DL is an essential skill and that not having it can be limiting.


> It is absolutely the expectation at most jobs that you can drive if need be.

You're making a broad generalization based on nothing but personal anecdote. In my personal experience, on the other hand, I don't know a single person who has ever needed to drive for work.


If I could choose I would never leave my apartment.


Surely just get your drivers licence regardless? Doesn't it cause pain and headache not having the ability to legally drive?

On second thought, I guess experience differs a lot based on location. Not having a drivers licence is pretty unimaginable for me where I live.


I totally get not buying a car under some circumstances given Lyft/Uber, ZipCar, and traditional rentals. I really have trouble with understanding not getting a drivers license other than in some very limited circumstances.

Your college friends are not going to give you rides forever. And your work options, living options, and vacation options are going to be quite limited. Obviously some people do it, but it's hard to imagine for a typical middle-class professional over the long term.

Even people I've known in Manhattan who put it off for a few years learned to drive eventually.


I don't know, I'm almost 30 and never got the license and know lots of people who never did either, my wife included. Not having a license has been slightly annoying maybe around 3 times in my life. Granted, the public transport in my city (Helsinki) is great, if I moved away I'd probably end up getting the license.


I guess I understand to some degree. It's a lifestyle choice. I don't go to some places that would require specialized vehicles and skills like high-clearance 4WD. And traveling internationally I certainly default to itineraries that don't require me to rent a car.

On the other hand, I know a lot of city dwellers and even those few who don't own cars because they don't need one day to day are constantly using either short-term or longer-term rentals to get around the surrounding area for various activities. (Or doing those activities with people who have cars though that tends to become more difficult as your circle of friends gets older.)


We budget around $350-$400 a month for Uber expenses, mostly for our teenage son to get to work from school, from school home on the days we can’t get him, and just if he wants to meet his friends. That’s still cheaper than even a $200/month reliable car (he’s too big to get into a little car) and car insurance which would easily be $250+ a month for a teenage male. My wife and I could probably come close to breaking even with only one car with me working from home 3 days a week.


Uber doesn't technically allow their drivers to carry your child alone.


I’ve heard that but he’s never had a problem.

On another note if I had a daughter, I would be more careful. I don’t think anyone is going to bother my 6 foot 200 pound son.....


DL is just a legal requirement. The bigger question is should I be driving sporadically? I find that quite dangerous. Imagine a guy who only drives 3-4 times a year and that too when he is on vacation at some place he has never travelled before. That's a huge risk of getting into an accident. Driving skills just like playing the piano or any other skill would deteriorate without practice.


I have a DL but haven't used it in years. Bicycle and bus/trains work fine in my country.


While we don't have perfect information for either Lyft, or Uber, a while ago it was reported that Uber at least was profitable within the San Francisco market, along with some other major urban areas.

A large part of their losses are down to expansion. The markets they've become established in are profitable.


This sounds like a fairly strong buy argument, so it must be reflected somewhere in the IPO documentation. Could anyone who read deeply into it share a link to more details?


how many cities have the density of san francisco and new york?


Good question. Of the top 100 urban areas in the world by population, sorted by density, the San Francisco bay area is number 88 and New York City is number 90.

In addition, Los Angeles is number 87. The only other entry in North America is Toronto-Hamilton (#83).

The top 90 cities (i.e. up to and including New York City) have a combined population of 965 million.

Also note that smallest in the top 100 is 4.3 million, so this probably misses a lot of smaller but more dense cities.

https://en.wikipedia.org/wiki/List_of_urban_areas_by_populat...


City density is a really tough metric. Most of NYC's land area is Staten Island which is essentially suburban. The transit situation is much different for NYC as a whole than it is for Manhattan.

You run into the same sorts of things with most cities. Urban density is at least somewhat a function of fairly arbitrary political boundaries.


If you’re in a mature Lyft/Uber market, it’s making money on you, possibly a lot. Both have healthy unit economics in modestly mature markets. The only time they lose money on rides is where the pooling is immature.


I have a separate credit card for tracking my usage of ride sharing services. I can actually give you the exact numbers. It's cost me approximately $6000 over the last 3 years or $2000/year. I think the rides are getting more expensive with time but I can probably put up with them until they start costing more than $4000/year. At that point owning a car might be better.


Not sure I understand what you're suggesting here.


In my case it was not buying a second car. Lyft is cheaper and more convinient.


Uber/Lyft (as well as other relatively recent options like ZipCar) definitely make a difference at the margins where a couple, for example, might have previously wanted a second car for occasional use.


The price wars can not last forever. Eventually Uber and Lyft will be like coke and Pepsi. They will find a way to compete on everything but the price.


I am about to join you.


Anyone else reading the rush to IPOs from so many companies as a leading indicator of a market top?


With the bond yield curve inverted VCs know that it's time to sell.


Except that it inverted long after these companies had decided on their IPO timeline. I am sure everyone will be here with "I told you so" takes if the market does go down. But if it doesn't no one will remember these predictions.


This Matt Levine snippet was relevant yesterday, it's more relevant today, it's probably going to be relevant every day.

>On the other hand, if you bet that stocks will go down, you have some compensating psychic rewards. For one thing, occasionally stocks will go down, and you will be praised for your prescience in predicting the crash, and the people who were long will be mocked for their complacency. How smart you will feel!

>For another thing, even if stocks haven’t gone down, you get to borrow psychically, as it were, against that future moment of glory. You can just go around sort of saying “this is unsustainable and eventually stocks will go down and I will be praised for my prescience,” and people will be surprisingly willing to say “yes that’s correct, I admire your hypothetical prescience.” Particularly since the 2008 financial crisis, financial markets—and financial media—have a strongly entrenched narrative of prescient bears and complacent bulls, a widespread sense that any rising market is suspect and that the cynical view is always the smart one.

Once again, its strikes me as odd that so many people clamor to call the top so frequently.


It’s a pretty risky time to be in the market at a full allocation.

I cannot imagine the 2020 electoral carnival and whatever shitshow emerges from Brexit will be taken well.


It followed a steady trajectory towards inversion, a lot of people could have and did predict the inversion years in advance.


If you believe a single indicator is enough to reliably predict a market crash... well, then you are delusional.


Absolutely. I won’t be surprised if this craters after the open, long before the rank and file employees get to see a dime.


I think above poster means it's an indicator of the whole market, not just lyft but other companies suddenly going for the ipo.


I would go one step further and say we are less than a year away from a global meltdown.


I think it has more to do with companies wanting to IPO when market conditions are healthy...as in good economy and investors willing to overpay for shares :)


Yep. Stock market represents selling out to the dumb money. I wouldn’t put a dime into lyft


I imagine you will, though, if you hold a broad market index fund.


Which index is Lyft in? Not in S&P 500.


Agreed. But I imagine if you buy something like the total stock market index (https://investor.vanguard.com/mutual-funds/profile/VTSMX) that Lyft would be included, since they try to buy every public US stock.


I think you are wrong. Snap has been excluded from FTSE[0] indices, as well as from the S&P 500, based on the fact that they have a dual class voting structure. It will probably happen the same to Lyft.

[0]: https://www.reuters.com/article/us-snap-russell/ftse-russell...


Actually, on line 885 of the constituents list on this page, it lists snap (so that would be part of the vanguard fund I mentioned):

http://www.crsp.com/indexes-pages/returns-and-constituents

Not sure about Lyft, of course.


Are you going to short it?


Shorting is always dangerous. Put options are safer as they don't have unlimited downside.


Just to add, a mildly more conservative/higher probability short would be a short call spread, can adjust the strikes depending on your risk tolerance/confidence. This limits upside but you no longer need to outpace theta, it's working in your favor on the sell side.

The long put is more sensitive to timing whereas the short call spread limits upside returns. Trade-off depending on your goals.

Edit: not to be confused with a short call, which has unlimited downside risk.


If one were to pursue this strategy, what's the quickest way to execute it? I called into my brokerage to ask, and they said it will probably be a week from tomorrow. Is there some lag after IPO's before the options market is established?


> Is there some lag after IPO's before the options market is established?

The shortest dated, exchange traded options are weeklies. These expire on Fridays.

I'd imagine you won't see volume there until at least Tuesday, though. In order to buy puts, someone needs to write them. Any reasonable seller will be delta hedging their position by shorting the underlying shares. Since equities settle T+2, it won't be easy to short the shares until Tuesday.


I'm uncertain when the contracts will begin to be listed, but I believe the minimum is 5 days after IPO.

Personally, there's quite a few unknowns that would deter me from entering this trade off the bat, as I don't usually trade IPOs. I don't really know what the short pressure on such a stock would be immediately after IPO. Ideally, I'd want an expiry less than 30-45 days away since I'm selling but, I'm uncertain that's enough time for this trade following IPO. I might execute it after seeing what happens at IPO for a few weeks or so. (edit) Of course, that may be far too late.

Also, I think it would be a hot stock for people to trade against, so I expect the spread to be reasonable, but the pricing to be extremely aggressive, which means the potential upside may not be enough for me to want the trade.

Options are all about timing, sooner may not be better.


Also, first understand what you are getting into. I personally have learned the hard way that options are a good way to burn a lot of money very quickly.


If you intend to actually delve into options trading you should seriously consider Interactive Brokers.


Thanks, is there an advantage to IB other than lower rates and an API?


No? It's a lot better than calling a broker.


Shorting is nuts because it could pop a crazy amount of money.

Also it’s close to impossible to short an ipo.


>unlimited downside

Is the stock going to infinity before you can repurchase it really a concern?


If you look at it as a geometric Brownian motion (which is better model forstock prices than brownian motion), the probability of the price halving is the same as doubling.

When you're shorting, you lose twice as much when the price doubles than when it halves.

It's not infinity, but it's a huge difference, and volatility is your enemy.


Dont, shorting is a losing battle against inflation. plus you have unlimited downside.


You can structure your shorts to have limited downside


I hope shorts lose all their money. All of it. Fortunately, I think Lyft will maintain or rise so you will be losing money.

Lyft is a good company in a difficult business. No one here should have any interest, financial or otherwise, in good companies deteriorating.


Can you explain more by what you mean with it is a "good company"? It is not a good or bad company, it is a company which mission is to make money.

Shorts help keep the stock market healthy by giving opportunities to investor to invest into overevaluated stocks. And honestly Lyft seems to be a perfect candidate for this.


Probably should have been steamrolled by Uber but managed not just to survive but to thrive. One key to success is that many believe the product is better, at least in part because riders and drivers seem happier. Very fast growing and huge revenues and gross margins. Along with Uber has pioneered a very successful and desirable transportation category. Good enough to complete a good, successful IPO.

I don't see much health value in ability to short over-valuation.


> No one here should have any interest, financial or otherwise, in good companies deteriorating.

That's a very Elon-esque understanding of what short pressure does.


So what does short pressure do and how does that relate to the sentence you quoted?


My friends own a flat in downtown San Francisco, about a 30 second walk from the 4th and King station. They're waiting till the middle of this year to sell because of the expectation of many new millionaires seeking property after the Lyft, Uber, slack, and other IPOs.


I hope your friend is prepared to hang on through mid /next/ year, since that's when the employee lockup expires, assuming this company even exists at that point.


Banks will loan against asset values. Getting a mortgage for $5m if you own $25m in stock is a no brainer for any underwriter, even if you can't technically sell it for 180 days.


Is it legal to seek a loan against locked up public stock?


Typically a bank mortgage would be secured by the property, not by other assets of the purchaser. Some (but not all) stocks / options might be restricted from being pledged/liened/hypothecated/etc, so they might not be available for “Loan me $5 million (to buy a house), secured by these shares.”

But because the bank is in the business of making mortgages against property, it won’t consider the shares as security in most cases. It may consider them as positive evidence in favor of one’s ability to service a mortgage, much like it would consider your income as evidence of ability to service the mortgage. It doesn’t have recourse against your income in event of a default.

(California is a no-recourse stage; talk to a real estate lawyer or similar professional if you are curious on the precise application to your situation, HN.)


I’m literally buying a home now, with vested-not-liquid Uber RSUs and the lender would not honor them as assets.


Yes...? It's up to the bank to evaluate its options.


At least when I had stock in a lock up, it was not. Loan against stock is effectively a sale.


A loan is nothing like a sale because you still take on all the asset risk. At most, a non recourse loan gives a slight hedge which isn't selling either. (You don't realize capital gains when you take loans or hedge a security)

Some market standoff agreements might prohibit using stock as collateral, but plenty don't. I chatted with an ibank willing to lend me money against locked out shares to buy a home with.


At least when I was in that situation, people were absolutely willing to loan me money, but I consulted a securities lawyer and they said the terms of the lockup agreement prohibited any loan against the value, hedge, agreement to sell, collateralizing, or anything that might in any way look like a sale or attempt to offset the risk, full stop.

So yes, ibanks will loan you money, because they don't care if you violate the lockup agreement. This should probably not be surprising, and it's buyer beware if you do.


How was your lockup agreement phrased?

If it's something like this one (https://blog.wealthfront.com/post-ipo-dilemma-hedging-stock/), where you have clauses like " enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the Common Stock or such other securities" exist, I agree using as loan collateral is pushing the limits, if not past it.

Many companies have much simpler language. Mine was just "will not sell or otherwise dispose of shares", which permits not only loans, but more powerful techniques like hedging.


Lockup periods are generally 180 days, so current shareholders should become liquid in the September timeframe.


There wasn’t much of a real estate price change in that area when Okta IPOed or GitHub was acquired (both a couple blocks away from Lyft/4th and King).


I read one theory a while back that suggested that a lot of people in SF are doing exactly this, which may ironically lead to an oversupply of inventory after the string of IPOs this year and cause house prices to dip.


A LOT of people are talking about and planning on this exact strategy. It’s for that reason that I agree with you - I think it’s going to look a lot like that NYE a year after Uber had the $300 surge price fares and all the drivers started counting all their money in advance - “Oh man I’m gonna make so much when prices shoot up at New Year’s again!” Then of course there was a ton of driver supply and prices didn’t go anywhere.

Everyone is talking about the “easy money” of selling a home as soon as “all those new millionaires are willing to pay top dollar for a new home”.

The problem with this plan is threefold: First, the basic supply and demand rules. Second, all the people selling homes are going to need to live somewhere else, right? So they too are going to have to pay an inflated price for a new home, which will eliminate any gains (the exception is if you own a home in SF and are planning on either leaving town or majorly downsizing). Third, just because someone is newly wealthy doesn’t mean they suddenly decide that paying 20, 30, 40% more for a home is rational. Many folks will keep renting or stay in their current homes if there’s a sudden rush to buy.

I wouldn’t be surprised if prices tick down a bit in 6-12 months from the oversupply before continuing on their regular scheduled steady march upward :)


Ah yes, timing the market! Always a good plan!


Smart money gets out at the top.


Disagree. Smart money is probably already out. There’s no guarantee you can accurately define when the top is. Fortunes are lost when people think they can.


> Smart money is probably already out.

Is it?

https://www.mercurynews.com/2019/03/28/bay-area-home-sales-d...


> Smart money gets out at the top.

People were saying we were at the top 5 years ago, but housing prices are way up since then.


Bubbles last longer than most people think. And then they pop.


Yield curve inversion, IPOs Of profitless companies, longest economic stretch without a recession. The cycle has to end at some point. I’m not saying when the recession will happen, I’m saying it will eventually arrive.


If house prices double between now and then and then drop by 30% it is profitable to buy now. As much as I hope house prices fall below where they currently are some time in the future, I wouldn’t count on it.


Well I don't want to poop on the parade, but isn't it a little bit thoughtworthy how rewards are distributed in our modern economic system?

A company that hasn't made money is making its founders generational wealth, as well as the investors. (Actually is this wrong? Googling seems to suggest they lost money in recent years. Point is the same though.)

Lyft might never make money, and yet people involved are making out like bandits. I get that some things will lose money before they make money, and it's not up to me to decide whether a particular thing should be invested in by other people.

But it seems if this trend continues, making money becomes more about getting investors to think they're gonna make money than about making a profitable business?


I was thinking about the same thing. It seems this stock is completely disconnected from the fundamentals and that's what allows it to go so high (And make the founder//VCs rich).

If we push this logic to the extreme, what would prohibit a stock to be completely uncorrelated to the company it represents? What if at some point a stock is traded based purely on the hype and the idea that someone else will eventually buy it for even more eventually later on? This seems to be what's going on with this IPO, it is 100% speculation that someone dumber than you will eventually buy it for even more. Back in the days dividends and voting rights were used to keep the stock inline with the company's fundamental, but in this specific case, why is the stock related at all to the company since there are no voting right nor dividends?


How is a company that makes no money in a commodity business worth so much. FB and Google had a monopoly. What moat does Lyft have to justify the valuation (24B)?


The network effects aren't very important for these companies. Their technology is not a moat, they have no critical patents. They burned most of their VC money selling dollars for $.75. Revenues are high, which only means they lose money fast. I won't be surprised if they lose half their value in three months.


When Austin voters kicked Uber and Lyft out of the city a couple years ago (before the state leg. overruled the city), RideAustin, a local non-profit, sprang up. RideAustin definitely had some growing pains, but now I never have issues with the app, and I prefer to use them because (a) they are local, (b) they do a "round-up" giving program for a charity I support and (c) my understanding is the drivers keep a larger share.

They've certainly suffered since Uber and Lyft came back to Austin, but they have showed that if Uber and Lyft went away tomorrow it would be trivial to fill their place.


How long do people think Uber and Lyft will continue before they collapse? 5 years? 8? I have a hard time see them still being around 10 years from now.

I'm more interested in what will happen after. Will local city Taxi apps fill in the gap? There are a few companies that brand/sell apps for multiple cities that could potentially offer multi-city service.

I think eventually, the price of rides will go back to where it was in the pre-Uber Taxi days, or at least fairly close. It will be several years though.


I think there's a case for those companies surviving like Expedia and Orbitz, a staple of the business they are in but nowhere near the stars we made them out to be. The resizing process will be painful mostly for the rank and file, investors and founders will do alright.


Expedia market cap is 17b Lyft is 24b


Expedia isn't a growth company, Lyft is. The question at this point becomes whether or not Lyft can make money, and at a scale to be worth that valuation now.


It's still an extraordinarily bad mis-pricing even when you account for the growth.

Lyft is being given a ~40% valuation premium over Expedia, with 20% of the sales and none of the profit (Expedia generated $842m in operating income last year).

What's the growth assumption on Lyft to justify the extreme risk imbalance in that equation? That they're going to do $15-$20 billion in sales within six to eight years? And that even if they manage to accomplish that somehow (while surviving Uber), they might only be worth then what they already are now as their growth inevitably slows considerably (removing the huge growth premium, contracting their sales etc multiple). It seems likely to end in disaster given the wild outcome required to justify the present pricing.


But this is what institutional investors want. They want to see hyper-growth and high burn rates to increase revenue and market share above all else.

But I think anyone that suggests a certain outcome in the market is "likely" is making some enormous assumptions. I wouldn't invest in a high-risk IPO like this, but the outcome isn't "likely" to end in disaster. Lyft is spending an enormous amount of money on R&D and new market entry.

Analysts have for years told us how a valuation at IPO is "never" going to work and been proven wrong time and time again. As a result, I treat both Lyft's potential as I do analyst recommendations: with a grain of salt.


When I was in Spain on vacation we had to use the myTaxi app. It doesn't have all the bells and whistles that Uber/Lyft apps have, but it got the job done and the prices were reasonable.


Shorting Lyft right now might be a great idea. (as great as it can be for someone with lay person knowledge of a company)

I think it may be the company with the largest IPO, that is still this neck deep in losses.


Its a new stock so it might be expensive to borrow.


It's duopoly, not a commodity business.


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