Author Topic: This is your brain on venture capital  (Read 3258 times)

LC

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Re: This is your brain on venture capital
« Reply #20 on: May 22, 2020, 09:57:35 AM »
I think Orange's post and the subsequent replies illustrate the problem.

You have a large amount of resources (human and capital) working on projects that are useful - but not profitable.

Nobody questions that Uber/Lyft/etc are a vast improvement from calling a taxi service or hailing a cab.

But why own these businesses if they cannot generate profits? Why invest in them? Why hire thousands of developers?

Is it unprofitable because the product is underpriced? Or the cost structure is bloated? Or some other reason?
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Read the Footnotes

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Re: This is your brain on venture capital
« Reply #21 on: May 22, 2020, 02:32:32 PM »
https://www.theverge.com/2020/5/18/21262316/doordash-pizza-profits-venture-capital-the-margins-ranjan-roy

Quote
Yesterday, Ranjan Roy, a content strategist and writer, wrote about the latter in his newsletter The Margins; one of his friends who owns a few pizza restaurants suddenly got an influx of customers complaining about delivery when the restaurants didn’t offer delivery. “He realized that a delivery option had mysteriously appeared on their company’s Google Listing. The delivery option was created by Doordash,” Roy wrote.

Apparently, this is one way that DoorDash does customer acquisition — by bullying restaurants. But what’s funnier about Roy’s friend’s problem (and it was a real problem because of Yelp reviews and angry customers) is that DoorDash priced the pizzas incorrectly. “A pizza that he charged $24 for was listed as $16 by Doordash,” emphasis Roy’s. And then: “My third thought: Cue the Wall Street trader in me…..ARBITRAGE!!!!”

And so the story unfolds. “If someone could pay Doordash $16 a pizza, and Doordash would pay his restaurant $24 a pizza, then he should clearly just order pizzas himself via Doordash, all day long. You’d net a clean $8 profit per pizza [insert nerdy economics joke about there is such a thing as a free lunch],” wrote Roy. They order 10 pizzas this way, and it worked! The money was free, a seamless transfer from SoftBank’s deep venture capital-lined pockets to Roy’s friend’s business bank account. Eventually, in another series of what Roy hilariously calls “trades,” they just ordered pizza dough through DoorDash for $75 in pure profit.

“So over a few weeks, almost to humor me, we did a few of these ‘trades’. I was genuinely curious if Doordash would catch on but they didn’t,” wrote Roy. “Was this a bit shady? Maybe, but fuck Doordash. Note: I did confirm with my friend that he was okay with me writing this, and we both agreed, fuck Doordash.” (I reached out to DoorDash for comment and will update this story if they reply.)
Yeah, sure there are some problems with the model in the short run, but what's the TAM?

(am I doing this right?)
« Last Edit: May 22, 2020, 02:55:09 PM by Read the Footnotes »

mcliu

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Re: This is your brain on venture capital
« Reply #22 on: May 22, 2020, 02:46:57 PM »
It's hard to distinguish the ones that are investing margins for growth like Amazon and ones that just have bad business models.
Financial statements just show losses in both cases.

Read the Footnotes

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Re: This is your brain on venture capital
« Reply #23 on: May 23, 2020, 06:46:47 AM »
So they lose 8 dollars a pizza, or about 25%.
The question is, will this scale?

https://www.youtube.com/watch?v=6M3vQyjz4Sk


DooDiligence

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Re: This is your brain on venture capital
« Reply #24 on: May 23, 2020, 07:01:25 AM »
So they lose 8 dollars a pizza, or about 25%.
The question is, will this scale?

https://www.youtube.com/watch?v=6M3vQyjz4Sk

I think it scales if & when autonomous driving takes hold.
You buy shares to pass on to your grandkids.

https://youtu.be/Vrxyr1CjiSM

edit: I meant re: Uber & Lyft.
« Last Edit: May 23, 2020, 07:11:49 AM by DooDiligence »
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DTEJD1997

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Re: This is your brain on venture capital
« Reply #25 on: May 23, 2020, 09:01:55 AM »
So they lose 8 dollars a pizza, or about 25%.
The question is, will this scale?

https://www.youtube.com/watch?v=6M3vQyjz4Sk

I think it scales if & when autonomous driving takes hold.
You buy shares to pass on to your grandkids.

https://youtu.be/Vrxyr1CjiSM

edit: I meant re: Uber & Lyft.

Why would Uber & Lyft want automated driving?

If they have an automated driving fleet, they are going to have to buy automated cars.  These cars are not going to be cheap.  Then they are going to have to insure them.  Then they are going to have to fuel them.  Then they are going to to have to maintain them.  Then they are going to have to replace them.

This is going to cost billions of dollars, perhaps even tens of billions of dollars.  Where is Uber going to get all that capital?  They sure as $@#% going to do it out of retained earnings.  That then leaves borrowing the money OR selling more stock.

NOW, Uber's drivers do all of that for them.  Uber's drivers are providing a LOT of capital by providing the vehicles.

At current pricing, or anything near it, Uber's business model simply does not work.

Spekulatius

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Re: This is your brain on venture capital
« Reply #26 on: May 23, 2020, 09:18:45 AM »
So they lose 8 dollars a pizza, or about 25%.
The question is, will this scale?

https://www.youtube.com/watch?v=6M3vQyjz4Sk

I think it scales if & when autonomous driving takes hold.
You buy shares to pass on to your grandkids.

https://youtu.be/Vrxyr1CjiSM

edit: I meant re: Uber & Lyft.

Why would Uber & Lyft want automated driving?

If they have an automated driving fleet, they are going to have to buy automated cars.  These cars are not going to be cheap.  Then they are going to have to insure them.  Then they are going to have to fuel them.  Then they are going to to have to maintain them.  Then they are going to have to replace them.

This is going to cost billions of dollars, perhaps even tens of billions of dollars.  Where is Uber going to get all that capital?  They sure as $@#% going to do it out of retained earnings.  That then leaves borrowing the money OR selling more stock.

NOW, Uber's drivers do all of that for them.  Uber's drivers are providing a LOT of capital by providing the vehicles.

At current pricing, or anything near it, Uber's business model simply does not work.

Well, if you believe in the “capital as a moat theory”, then the above is really a bull case and just requires to throw a few hundred billions at this problem. At the point in the future this occurs, we are likely used to these numbers.
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DooDiligence

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Re: This is your brain on venture capital
« Reply #27 on: May 23, 2020, 09:29:40 AM »
So they lose 8 dollars a pizza, or about 25%.
The question is, will this scale?

https://www.youtube.com/watch?v=6M3vQyjz4Sk

I think it scales if & when autonomous driving takes hold.
You buy shares to pass on to your grandkids.

https://youtu.be/Vrxyr1CjiSM

edit: I meant re: Uber & Lyft.

Why would Uber & Lyft want automated driving?

If they have an automated driving fleet, they are going to have to buy automated cars.  These cars are not going to be cheap.  Then they are going to have to insure them.  Then they are going to have to fuel them.  Then they are going to to have to maintain them.  Then they are going to have to replace them.

This is going to cost billions of dollars, perhaps even tens of billions of dollars.  Where is Uber going to get all that capital?  They sure as $@#% going to do it out of retained earnings.  That then leaves borrowing the money OR selling more stock.

NOW, Uber's drivers do all of that for them.  Uber's drivers are providing a LOT of capital by providing the vehicles.

At current pricing, or anything near it, Uber's business model simply does not work.

My thought was for a distant future where there are no human drivers and the business of these guys changes to dispatch & operation as a service for whoever winds up providing the vehicles.

Just noodling around on a scenario that I'll likely never live long enough to see.
AFL // BRK.B // CLB an incredibly stupid move // DIS // EW // GPC // MO an incredibly stupid ex-CEO // NVO // PSX // ULTA // VDE // VLGEA // WFC

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Pelagic

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Re: This is your brain on venture capital
« Reply #28 on: May 23, 2020, 11:23:54 AM »
So they lose 8 dollars a pizza, or about 25%.
The question is, will this scale?

https://www.youtube.com/watch?v=6M3vQyjz4Sk

I think it scales if & when autonomous driving takes hold.
You buy shares to pass on to your grandkids.

https://youtu.be/Vrxyr1CjiSM

edit: I meant re: Uber & Lyft.

Why would Uber & Lyft want automated driving?

If they have an automated driving fleet, they are going to have to buy automated cars.  These cars are not going to be cheap.  Then they are going to have to insure them.  Then they are going to have to fuel them.  Then they are going to to have to maintain them.  Then they are going to have to replace them.

This is going to cost billions of dollars, perhaps even tens of billions of dollars.  Where is Uber going to get all that capital?  They sure as $@#% going to do it out of retained earnings.  That then leaves borrowing the money OR selling more stock.

NOW, Uber's drivers do all of that for them.  Uber's drivers are providing a LOT of capital by providing the vehicles.

At current pricing, or anything near it, Uber's business model simply does not work.

My thought was for a distant future where there are no human drivers and the business of these guys changes to dispatch & operation as a service for whoever winds up providing the vehicles.

Just noodling around on a scenario that I'll likely never live long enough to see.

It'd still be in their best interest to let suckers like us buy the cars and then let them earn some money through their platform while we're not using them. This would be an ideal scenario for a lot of users where you have total use of your car when you want it but it can also bring in some income when you're not using it.

The idea that Uber or Lyft will pivot to be massive self driving fleet owners has always struck me as far fetched. It seems like a massive capital outlay for little if any additional margin on each trip. We already know many drivers are underestimating wear and tear on their cars and barely breaking even when all costs are factored in, why would Uber/Lyft pass up a good thing like this. My cynical theory is that self driving cars and a massive fleet of them will require hundreds of billions more in investor capital a fraction of which will fund salaries for employees and buoy the stock price for a while longer allowing more value to be extracted by current shareholders.

DooDiligence

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Re: This is your brain on venture capital
« Reply #29 on: May 23, 2020, 03:48:56 PM »
So they lose 8 dollars a pizza, or about 25%.
The question is, will this scale?

https://www.youtube.com/watch?v=6M3vQyjz4Sk

I think it scales if & when autonomous driving takes hold.
You buy shares to pass on to your grandkids.

https://youtu.be/Vrxyr1CjiSM

edit: I meant re: Uber & Lyft.

Why would Uber & Lyft want automated driving?

If they have an automated driving fleet, they are going to have to buy automated cars.  These cars are not going to be cheap.  Then they are going to have to insure them.  Then they are going to have to fuel them.  Then they are going to to have to maintain them.  Then they are going to have to replace them.

This is going to cost billions of dollars, perhaps even tens of billions of dollars.  Where is Uber going to get all that capital?  They sure as $@#% going to do it out of retained earnings.  That then leaves borrowing the money OR selling more stock.

NOW, Uber's drivers do all of that for them.  Uber's drivers are providing a LOT of capital by providing the vehicles.

At current pricing, or anything near it, Uber's business model simply does not work.

My thought was for a distant future where there are no human drivers and the business of these guys changes to dispatch & operation as a service for whoever winds up providing the vehicles.

Just noodling around on a scenario that I'll likely never live long enough to see.

It'd still be in their best interest to let suckers like us buy the cars and then let them earn some money through their platform while we're not using them. This would be an ideal scenario for a lot of users where you have total use of your car when you want it but it can also bring in some income when you're not using it.

The idea that Uber or Lyft will pivot to be massive self driving fleet owners has always struck me as far fetched. It seems like a massive capital outlay for little if any additional margin on each trip. We already know many drivers are underestimating wear and tear on their cars and barely breaking even when all costs are factored in, why would Uber/Lyft pass up a good thing like this. My cynical theory is that self driving cars and a massive fleet of them will require hundreds of billions more in investor capital a fraction of which will fund salaries for employees and buoy the stock price for a while longer allowing more value to be extracted by current shareholders.

I may have read too much scifi & watched too many Jetsons episodes as a kid.

That said, I'd never buy into any of these sharing economy businesses.

Being an end user is definitely a great deal though.
AFL // BRK.B // CLB an incredibly stupid move // DIS // EW // GPC // MO an incredibly stupid ex-CEO // NVO // PSX // ULTA // VDE // VLGEA // WFC

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