Comment by ChuckMcM | Hacker News Reader

Comment by ChuckMcM | Hacker News Reader

As others point out this isn't necessarily bad, but it does mean that Uber is extremely vulnerable. If we learned anything in the last bubble it was that attempting to bootstrap through the power curve is exceptionally susceptible to capital constraints. Back in the dot com days a number of 'baby telephone companies' that were building out their networks and spending huge amounts of money on laying out the infrastructure that was going to carry the traffic they would get after their build out, meant that any cash crunch had this amazing multiplicative effect, which resulted in a massive implosion in practically no time (one customer I talked to in 1999 was putting the finishing touches on a $1.2M PO on Monday, and when we showed up for the meeting on Wednesday the doors were locked and the name of an attorney's office was there for questions. Later I found out they were negotiating additional funding and even though their business plan was "solid" once some other companies had gone under, everyone got too skittish to commit. They were already burning through cash to people who were putting in new fiber cables etc. They went upside down (more obligations than cash or revenue) on Tuesday and the bank sent the attorneys (and Sheriff) over to secure the assets before anyone could walk them out of the building that afternoon. Pilots have a term for crashes like this, its called "controlled flight into terrain" where basically right up until the last moment the pilot was flying the plane. So it can be with startups that right up until the day it isn't flying they are in control.

Its nice that if Uber does implode (not that they will) that only VC's will lose their money, of course Uber drivers will be out of their jobs as well but they hopefully won't be greatly finanically hurt. And of course a lot of employees that thought they were millionaires will realize that they aren't (been there, done that, got the t-shirt :-()

I hope at some point in the not too distant future we can get some more transparency on their financials. I really do consider them the poster child for the 'dynamic' economy (one where service suppliers and service demanders are paired in real time for a fee). If they can't make it work it will really call into question if it is even possible to make it work.

The question is whether Uber is buying anything of durable value with their billions. Dot-com companies were buying warehouse space, laying fiber, creating lock-in. Uber might be running competitors out of business, but it's a business with low barriers to entry, and they're not really locking in customers or drivers.

They may claim to be building a moat, but to me it looks more like they're buying overpriced water.

Its a fair question. If I were to speculate I would say they were buying habits. Specifically transportation habits. The closest analogy in my own experience is telephone directories. For all of my early life experience there where printed and bound telephone directories which you consulted when you needed to find the telephone number of someone you wished to talk to. There was a very profitable business in selling ads in the commercially oriented pages.

Google search changed that, over time it became easier to find a phone number online than it was in the books. Then with the smart phone it combined both the phone and the number database (search engine) into a single device and now very few people use phone books.

But that habit changed slowly, over a decade at least to go from early adopters to the majority of people out there using their phone (or the web) to look up numbers. So the habit for calling a cab is changing slowly. From regulated livery service to less regulated ride share service. During that transition Uber is apparently "spending" billions[1] to connect in peoples brains 'Uber' and 'rideshare' so that as ride sharing becomes the expected norm, people will think of it as Uber not "any number of ride share companies."

[1] It is an odd definition of spend, they are perhaps purposely under pricing their service (so subsidizing) in order to encourage use.

> Its nice that if Uber does implode (not that they will) that only VC's will lose their money...

Although don't forget the VC funds' lending partners are often pension funds and other traditional investment vehicles that you or I might use.

True but if the pension fund has more than a fractionally small percentage of their fund in startups then they don't deserve to be pension fund managers. When an Australian pension fund joined one of Blekko's funding rounds the amount their manager was spreading around the valley seemed like a lot of dollars but was less than .1% of the funds under management. So losing all of it had very little material impact on the fund, but a really big unicorn might push the return on the fund up by 20 or 30 basis points.

Agreed.

I thought it worth clarifying for people like those I regularly meet who aren't aware of the LP role in the industry. There's a misconception that the VCs are just investing their own money.

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