![]() But they’ve carefully avoided naming which companies are guilty of burning so much cash. Uber investor Bill Gurley and Lyft investor Marc Andreessen have been the most vocal. This year Silicon Valley’s most prominent investors have issued warnings about out-of-control spending at start-ups, while maintaining that this is not a tech bubble. Uber is currently trying to argue its way out of a similar class-action lawsuit. But one could easily argue that regulatory attention on worker classification was just the final blow to Homejoy’s already-failing business. Homejoy, an “Uber for maids” company that raised $39.7 million in funding, shut down in July, blaming a class-action lawsuit against the way it classifies its workers. If Uber has to burn tens of millions per quarter to grow its business, what does that mean for the countless “Uber for X” start-ups that followed Uber’s model because it looks like a sure win? What does that mean for the $4.1 billion invested into on-demand start-ups last year? There’s Doughbies, the Uber for chocolate chip cookies. There’s an Uber for doctors, massages, haircuts, flowers, reservations, booze, marijuana, dog walking, cat sitting and pizza. ![]() And there is an Uber for everything: Uber for groceries, Uber for housecleaning, Uber for moving and Uber for lawn mowing. Start-ups that deliver on-demand services through an app use the analogy “Uber for X” as shorthand for their strategies. Uber’s model is so revolutionary that legions of imitators have copied it. The company’s business model has been praised as disruptive, pioneering and inevitable. Further, because it’s all happening in the private sector, regular Joe and Jane investors aren’t risking their retirement funds like they did in the dot-com bubble.Īs long as Uber’s financials are private, it can be viewed as a winner. Compare that to 126 such deals in all of 2013, and just 23 in the second half of 2013.ĭefenders of this jump in mega-rounds will correctly point out that the $50 billion invested in private tech companies each year is tiny compared with the trillions deployed by mutual funds and public market investors. Or when you see that they’re actually getting those deals: In the first half of this year, more than 100 start-ups have raised funding rounds of $100 million or more, according to CB Insights. But it provides some perspective when you hear stories of start-up founders with unproven business models demanding “one-on-one deals” - a $100-million investment on a $1-billion valuation. ![]() For starters, Microsoft was selling to a small, fast-growing market of computer owners - less than 10% of households in the ‘80s - compared with almost 2 billion smartphone users today. In other words, Microsoft had been sustaining its own growth for years. By the time Microsoft went public in 1986, it enjoyed pre-tax profit margins as high as 34%. That’s about $2.9 million on a $525-million valuation in today’s money. ![]() But Uber’s big ambitions don’t make its financials any less unsettling.Ĭonsider that Microsoft raised a total of $1 million in venture backing for a 5% stake, in 1981. If you wanted that, go find a nice lifestyle business, or start an agency, according to the thinking in Silicon Valley. Uber, like its VC-backed peers, is not playing it safe. It’s easy to forget, as private company valuations shoot to dizzying heights, that venture capital is designed for high risks and high rewards. This is the rub with all the successful-looking start-ups propped up by venture funding.
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