How did these companies overestimate demand so much? Surely they could have seen that the demand from the pandemic years was an anomaly and not a sustainable "new normal"?
The issue is low interest rates + helicopter money -> high interest rates + fed sell off.
Bird did not overestimate consumer demand, they overestimated how easily they could finance a cash flow negative company.
Many people stopped taking public transportation in favour of these alternatives
As a result, 2021 income: 205M, expenses: 425M
Essentially, this is the business of selling for 0.50 USD something that costs 1 USD to produce.
VCs often tell companies to hire like mad. The idea is that revenue growth is more important and will catch up. Additional runway is found with more and more funding rounds. So you can happily grow at ridiculous rates and lose money for years and years all the way to IPO.
This strategy stops working in a dramatic way if you cannot keep raising VC money. Suddenly, the funding round isn't coming to save you and your bank balance is draining fast. The only solution is to slash costs.
I've been out of touch with the startup world the last few years, but something seems to have changed where otherwise mature companies with low-mid four-digit employee counts still work as "startups" (complete with the lack of profitability).
hiring new people is often decided at the department level. hiring freeze and big layoffs come from the very top. two weeks ago the department heads had probably no idea
The VC wave is over, and so is "growth & engagement". Now the only way to survive is to actually make money from selling your product/service and saving that money instead of burning it on expanding the engineering playground where complexity was considered a feature.
This means that these companies expected they would get a constant inflow of fresh cash.
You have 1000. You borrow 1000, you pay back 990, now you have 1010 and your capacity to borrow has increased.
You borrow again.
Infinite money glitch.
However, 1 month ago, the glitch was fixed. So, the "crisis" comes.
I can see an argument for taking advantage of near zero real rates to hedge inflation: borrow 1000, buy assets, sell assets for 1080, repay 1001.
At its core, Bird creates hype by creating a product or a service, this hype has some value.
Investors believes they can increase and benefit from this hype so they decide to bring new cash.
This new cash is supposed to be used generate new revenue, which in turn is increasing the hype, and this hype helps to bring new cash.
At the end of the cycle, the point of fast growing private equity fund is to carry and grow hype until a potential IPO which is the time the retail investors or the general public are going to be left holding the bag (Airbnb, Uber, Coinbase) or to the point where the company becomes profitable and distributes future earnings (e.g. Microsoft).
Which means, as long as there is hype, there is new money coming in.
The reason money comes so much is because investors are nudged to spend their cash (e.g. negative interest rates also means that people who have cash and not equities are punished, as they have to pay interests!). Also, the retail investors have had this incentive but don't anymore.
Remember, during the corona, a lot of people didn't know what to do with their money because no restaurants, no travel, etc. So playing with cryptos and stock market on Robinhood.
-> The expected inflows of cash are going to decrease because retail investors that will hold the bag eventually won't be so keen to invest as they need their money (higher inflation).
-> The cash is more expensive, so there is a mechanical reason for the decrease.
-> There is uncertainty
Overall:
-> We need the company to survive so the pyramid doesn't collapse.
-> Rationalizing by reducing our cost base is the most reasonable solution to protect all the investors and the employees who invested their time and sweat.
I hope it makes sense.