WeWork's Sudden Fall Reveals the Cracks in the Startup Economy (theoutline.com) 47
The venture capital firm First Round Capital conducts an annual "State of Startups" survey that gets passed around widely in Silicon Valley. Its 2019 findings, published this week, are grim. From a report: Over two-thirds of startup founders, more than ever before, believe that we are in a tech "bubble." Sixty-five percent of founders believe that it's going to be harder for them to raise money next year, up 20 percent from last year's survey. Across the country on Wall Street, there are those who share these entrepreneurs' new pessimism. In a note, Bank of America's research division suggested that recent shifts in the market could produce a lot of pain and "volatility" in the coming year.
Let's call it the "WeWork effect." For some context, new companies, especially startups from Silicon Valley, were able to raise substantially more money from private investors in the past decade than they were in previous years. This continued to be the case even as these companies, like Uber and WeWork, got bigger and bigger, approaching the size at which they'd traditionally need make a public stock offering in order to raise the necessary cash to keep growing. As Bloomberg columnist Matt Levine frequently says, "private markets are the new public markets," meaning that these companies are able to tap the same kinds of large investors as they would if they were publicly-traded without actually going public.
Let's call it the "WeWork effect." For some context, new companies, especially startups from Silicon Valley, were able to raise substantially more money from private investors in the past decade than they were in previous years. This continued to be the case even as these companies, like Uber and WeWork, got bigger and bigger, approaching the size at which they'd traditionally need make a public stock offering in order to raise the necessary cash to keep growing. As Bloomberg columnist Matt Levine frequently says, "private markets are the new public markets," meaning that these companies are able to tap the same kinds of large investors as they would if they were publicly-traded without actually going public.
It's probably for the best (Score:1)
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Nothing innovative at We Work (Score:5, Insightful)
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Nothing innovative in most startups. It's just "We'll do X, but on the Internet, and with low paid contractors!"
Re:Nothing innovative at We Work (Score:5, Funny)
Wait! Are you saying I could have gotten my Pizza delivered before there was GrubHub?
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There was something called Takeout Taxi around the DC metro area when iPhones were just a pipe dream. AFAICT they no longer exist as a going concern, but I found this record from 1996 in Texas [corporationwiki.com], which sounds plausible. I don't know what their relationship was with restaurants, but you definitely didn't need an "app" because they didn't exist yet! As always, where there was a will there was a way--it just cost more. When I was a courrier in the early 90s we sometimes took unconventional packages. Food do
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yes but not anything else, which is why grubhub and doordash exist.
I had food delivered from multiple places in 1998. You must have been born sometime in the last 5 years.
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It is no cracks, it is gaping chasms of fraud and corruption. The big financiers who are the hidden hedge fund manager know exactly what they are doing. Invest heavily in some 'MARKETABLE' company, and then start marketing and hyping it. Paying for planted propaganda story (making use of the corrupt deep state and shadow government crap journalist network) and just hype the fuck out of the company.
Keep it financially afloat whilst pushing and rabbiting on about growth and then IPO and cash in and watch it
A Venture Capital idiot and his money are (Score:5, Insightful)
soon parted.
WeWorks had all the signs of impending implosion, and VC's were still pouring in the money, despite the "losses".
Looks like most of the money went to the founder, and his wife, who were buying up real estate, and renting it back to the company.
That's a good thing (Score:5, Insightful)
And we will track in all... (Score:2)
on blockchain.
Re: And we will track in all... (Score:1)
With AI and nuclear fusion!
Failure (Score:4, Insightful)
I wouldn’t be worried if investments in Silicon Valley tech companies fall off unless investors aren’t finding other companies to invest in either. I don’t think that’s the case and with the economy doing well at the moment I would imagine that there are simply more and other investment opportunities that look more attractive.
Comment removed (Score:5, Insightful)
nonsense. its business (Score:4, Insightful)
Read "The Goal" by Goldratt: https://en.wikipedia.org/wiki/... [wikipedia.org]
These other “noble” causes are just BS if the company is non-sustainable, aka profitable. And most of the “new businesses” are not sustainable. Uber, Peloton, WeWork and a bunch of others are burning boatloads of cash. Meaning, in a capitalist society, they’re destined to go byebye if they can't right the financials.
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But Amazon lost money for years and now they make a lot of money! Thus, every startup eventually makes money.
Re:nonsense. its business (Score:4, Interesting)
If you have a company that does $200 billion in business that year a billion dollar loss isn’t too meaningful, especially if you grew that revenue by a good amount. When a startup or young company is doing that it likely means that the company is just reinvesting all earnings back into the company. If you’re a company like Uber that’s losing money like that on only a few billion in revenue then there’s a big problem even if you’re growing. That quickly turns into good money after bad for some investors. But it’s their money.
Re:nonsense. its business (Score:5, Interesting)
Actually, since 2003 [dazeinfo.com], Amazon had 3 quarters of loss - it's been profitable nearly its entire life. It took about 5 years of pretty minimal losses before it turned the corner - and it's well up since then. AMZN lost about $3 billion cumulative before it turned the corner into profitability (5 years in), and then by 2010 it had recouped all losses and was now "in the black".
If WeWork followed the same trajectory, they would have become profitable by 2015, and would be close to recouping all historical losses at this point. Rather than still hemorrhaging more than a billion a year. Uber as well.
This is simply irrational exuberance over growth-at-any-cost finally waking up with a raging hangover - and realization that there never WILL be a corner to turn to profitability.
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I agree about Peloton. Getting some of the key positive experiences of a popular type of gym class in the convenience of your own home is a value model that does make sense. People already do spend $50 to $150 dollars per month to be a member of a gym, usually paying a similar sized fee up front. If you have a six figure income, the gym membership is an okay expenditure is you go at least once per week, and probably a good deal if you go twice per week. A Peloton bike is not all that different, only a b
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Stupid article (Score:3)
Germany raised something like 20 or $30bn with govt bonds with a negative interest rate of -0.5%. They all sold in record time.
What this means is there is shitloads of money not earning anything.
The amount that goes into VC is tiny in comparison so there will not be a shortage of vc cash for years or even decades, unless interest rates start climbing which is unlikely.
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What I take from this is that some people are very optimistic about the stability of Germany, but very pessimistic about the economy in general. Also, it seems like Germany would be foolish not to park some of the proceeds from that sale in US bonds and pocket the difference in interest.
I pointed this out elsewhere (Score:1)
For the pension scam the trick is to get public pensions to invest in these Unicorns. Pensions move slower than individual investors, allowing an investor to get out before the Unicorn collapses and leave the pension (and the taxpayer) holding the bag.
As for CDSs, we all know in 2008 the economy collapsed when bad mortgages were bundled into phony investments. The laws preventing that were repealed (it w
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Your naivety is charming, but...as current events show, even if who we elect is honest, if the un-elected don't go along - or for that matter, the party you seem to favor - voting doesn't matter. Truth doesn't matter, other than that pointing out the basic failures in human nature, including the ones you point out above. No elected official or group of them can -or ever has- change that.
It absolutely matters (Score:2)
But here's the rub, if we win by about 5% then the Goons can't cheat. It's too obvious. As bad as things are we haven't gone full North Korea where the vote is really just a Census.
And yeah, we can have elected officials change the system. Ranked Choice is a good place to start. And Mandatory Voting (it prevents Voter Suppression).
Like any complex machine Democracy needs upgrades and improvements from
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I suspect the real problem is that the pensions promised fa [businessinsider.com]
We tried that (Score:2)
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But I think your argument is just plain wrong, because what prevents t
Cracks? It is that way by definition and design. (Score:3)
It is and was always as rigid and stable as an ateroid. Basically loosely packed ice and dust, flying too close to the sun, ans thrning into yours truly, vaporware.
Because all those projects are so incredibly incredibly bad. ... (*Microsoft has just entered the chat*) ... till kingdom come. Gotta catch em ALL!
They all consist of the same business model: Take something existing that is utteely mundane and has been solved loong ago, filter it through ten layers of Chinese telephone cargo cult paper, and add a "twist" that only and exclusively makes sense in this already mind-blowingly misguided alternate perception universe, that is not improving or innovating anything, and thartany idiot could have come up (and probably already did).
Usually involving a "platform" or "community", aka a way to furn an entire market into your exclusice monopoly. And market participators into either your employees or your clients. Having them still do the work, while you just seat yourself in-between, taking a share. For nothing, really.
Then hype and push it as if it was something entirely and completely new
And after that, it *surprisingly* deflates like a soufflee ejected onto a moist winter mattress outside and shown a picture of Magaret Thatcher in lingerie.
WHO WOULD HAVE THOUGHT!?
Frankly, I think all those startups that inflate/deflate so quickly, are just cocaine-overconfident kids, falling for get-rich-quick delusions, driven by financial gamblers.
No healthy business grows that quick. A healthy business is a *stable* business. Growing more over decades and centuries, than over months. And not being afraid of the reliable stabiliy of no growth at all, aka "stagnation", aka the healthy state of any sustained running process, including life, in this universe.
IMHO, there is a direct relationship between speed of growth and speed of downfall.
Want something to be proud of? Focus on a truly new, or at least great product, outside of any misguided paths. And not on "growth". Get your money from trusting clients. Not gamblers.
And take your time. It'll be fun!
Great ... proofread everything... (Score:2)
Typo in the first sentence.
*performs harakiri* ;)
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You mean where you wrote asteroid when you meant comet? Many asteroids are solid chunks of relatively or literally uniform composition.
No cracks in the startup economy (Score:2)
Re: No cracks in the startup economy (Score:1)
WeWork was not a tech startup (Score:2)
No day traders (Score:1)
If you're wondering why public listings suck. With private stock you can avoid day traders, you can capture long term investors, you have more control over the buyers and sellers of your shares, and you can screw over your class B holders (employee grants) if the business ever has problems. Allowing important investors to pull out, and retaining those relationships for future startup attempts.
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Why not Zoidberg? (Score:2)
Wework isn't a tech startup (Score:4, Insightful)
Wework isn't a tech startup (even if they wanted people to think they were), so I'm not sure why their performance has any reflection on real tech startups.The lesson to be learned here is that investors can tell the difference between a real estate company and a tech company even if some VC firms pretend that they can't.
The Cloud also helps (Score:3)
One of the differences between the Second Dotcom Bubble and the First one is the presence of public cloud. Since these startups are starting from nothing, they're cloud-native, and can just pay Microsoft/Amazon/Google every month via the VC's credit card. That's very different from the First bubble where founders had to lay out massive sums for data centers, bandwidth, infrastructure and other on-prem extras. Second bubble startups are able to spend the VC money on the founders' extravagant lifestyle and zany office space...and that's where WeWork comes in. Just like the cloud, they can rent this expensive real estate in the middle of SF or NYC and get the preschool office pre-furnished with the option to rent more or less as needed.
The cloud (IMO) allows startups with dumb or exploitative business models to hang around longer than they would before they have to IPO and be subject to public scrutiny. Remember that WeWork was cooking along with the CEO collecting rent from his own business before people started asking too many questions. This explains why there are 9 copies of the same business model still duking it out also...how many meal kits, product box subscription services, etc. are still out there after years of less-than-enthusiastic growth?
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The currently last two [iheart.com] episodes [iheart.com] of the podcast Behind the Bastards [behindthebastards.com] covers WeWork, highly recommended to listen to.
WeWork's failure are more caused by its founder's asshole/crazy behaviour rather than anything technology related aspect (to the degree technology is even relevant to WeWork).