{"id":2246,"date":"2015-11-18T14:06:32","date_gmt":"2015-11-18T22:06:32","guid":{"rendered":"http:\/\/iwasmisinformed.com\/?p=2246"},"modified":"2015-11-18T14:06:32","modified_gmt":"2015-11-18T22:06:32","slug":"y-ask-why","status":"publish","type":"post","link":"https:\/\/iwasmisinformed.com\/?p=2246","title":{"rendered":"Y Ask Why"},"content":{"rendered":"

Last week\u2019s Economist<\/em> included an article<\/a> about one of the neighbors. Y Combinator is an incubator\/startup boot camp\/venture capital provider in Mountain View that has become the poster child for people who think entrepreneurship can be reduced to a simple process capped with the standard rich and famous contract at the end. \u00a0Go read the article, I\u2019ll wait.<\/p>\n

Back? Good. Let\u2019s go:<\/p>\n

1) I find it singular that of the half-dozen \u201cunicorns\u201d the article cites, not one has gone public or been acquired. \u00a0These are all privately held companies whose valuation is based on what some entity was willing to pay for a percentage. In 1999, the exit strategy for your company was to go public and cash in with a breathtaking IPO. In 2009, the exit strategy was to sell out to Google, or Facebook, or Apple, or maybe Amazon or Microsoft, or if you\u2019re really desperate, Yahoo. \u00a0Now, in 2015, the goal seems merely to be to get the highest possible valuation by enticing one VC firm or another to give you the most money for the smallest percentage, thereby \u201cvaluing\u201d your company at some astronomical sum. \u00a0The problem is, not one bit of that is liquid. \u00a0AirBnB is the highest-valued of these companies, and it certainly seems to have a viable business model and generate revenue from same (legal issues around people using it to go into the hotel business notwithstanding*). But the question becomes: who, if anyone, is going to pay $25.5 BILLION dollars to acquire them? And if they go public, \u00a0are they really going to offer a hundred million shares at $255 a share on opening day? \u00a0There are an awful lot of unicorns, so-called, whose expansive valuation almost certainly could not survive exposure to an open market.<\/p>\n

2) We\u2019ve defined the tech-sector down to \u201canything that has an app.\u201d AirBnB is a short-term rental company. Instacart is a food-delivery logistics company. \u00a0Stepping outside the Y ecosystem, Uber – maybe the poster child for the current bubble – is a taxi company desperately trying to pitch itself as actually being Tinder for cars rather than a taxi company. It\u2019s been said before and better by smarter people than me, but the current model really seems to be one of \u201cthink what your mother doesn\u2019t do for you anymore\u201d -> replace all normal communication\/commercial infrastructure with smartphone app -> SWEET SWEET FILTHY LUCRE FROM THAT DICKHEAD ANDRESSEN. Nice work, if you can get it.<\/p>\n

3) Way way WAY too many of these ideas are a product of regulatory arbitrage, loophole-seeking, and sheer bloody-mindedness. \u00a0AirBnB is NOT your hotelier. Uber (and Lyft and Sidecar and Gett) are NOT taxi companies. WeWork is NOT a commercial real-estate company. DraftKings and FanDuel are NOT wagering. Instacart and DoorDash are NOT in the food business. If you get work via Uber or GigWalk or Fiverr or TaskRabbit or (fill in app-based task-driven contract-labor service HERE), you are NOT their employee, you just happen to have contracted with this other private party. So we have a bunch of companies which are worth way more than the sum of their profit and assets, surviving on the steady intravenous drip of VC money, dependent on a workforce of people who are absolutely not their employees. \u00a0How the hell is this supposed to be a viable economic model?<\/p>\n

And in the meantime, here is Y Combinator, which the article openly says that \u201caspiring entrepreneurs clamor to attend\u2026as much for what they learn there as for the stamp of approval and network they can claim when they leave.\u201d As much?<\/em> Y Combinator has managed to out-Stanford Stanford, and an industry that supposedly scoffs at legacy ideas of credentials and old ways of thinking about pedigree now instead throws an automatic seal of approval behind whoever comes out of this particular three-month boot camp. \u00a0And it\u2019s desirable enough that two guys from Brazil will spend thirty hours<\/em> in transit – each way<\/em> – for the sake of the single ten-minute<\/em> interview that determines whether or not they will get accepted into the ranks of the Elect. Ten minutes. My scholarship interview for a no-account liberal-arts college in the Deep South took longer than that. But that magic Y is now so coveted that it\u2019s worth spending two and a half full days, round-trip, for the sake of ten minutes to see if the golden finger will bless your idea.<\/p>\n

If that isn\u2019t a bubble, I\u2019ll kiss your ass.<\/p>\n

\u00a0<\/p>\n

\u00a0<\/p>\n

\u00a0<\/p>\n

* AirBnB is one of those things where they keep pushing the original model, i.e. \u201clet out the spare room and meet people while making a little extra scratch.\u201d \u00a0We have actually done this. It has worked out well. The problem comes when somebody buys a building, evicts all the existing tenants, and turns it into what is functionally a hotel administered via AirBnB. This was a big part of the backlash that manifested as a couple of voting propositions earlier this month in San Francisco, and I expect it to continue to be an issue in any market where housing supply is constrained and former private accommodations are converted for AirBnB use full-time.<\/p>\n","protected":false},"excerpt":{"rendered":"

Last week\u2019s Economist included an article about one of the neighbors. Y Combinator is an incubator\/startup boot camp\/venture capital provider in Mountain View that has become the poster child for people who think entrepreneurship can be reduced to a simple process capped with the standard rich and famous contract at the end. \u00a0Go read the … <\/p>\n

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