|Oct 11, 2016||Public post|
Early in September, TechCrunch wrote it was “hearing from sources” that Postmates was “raising at least $100 million in a round led by Founders Fund.” For Postmates, TechCrunch added, “this is obviously good news.” Alas, there’s more to the story. I’ve heard from sources that Postmates has had a tough time finding interest on the terms it hoped for, and has packed the Series E round with deal-sweeteners such as warrants. A warrant is a type of derivative that gives its holder the right to buy or sell another security—typically equity—at a preset price before it expires. Postmates’ proposed funding terms for its latest round contain “substantial” amounts of sweeteners, my sources said. Arrangements like these can quietly make deals more attractive to investors in order to close a round without forcing a startup to officially drop its valuation. It’s unclear whether Postmates’ round remains open.
Postmates has obviously had its share of problems (for more on that, click here) but I think this story is also important as a barometer of Silicon Valley. 2016 has been a sobering year for startups. Funding that was easily had in 2015 has become much tougher to come by. In the last quarter, VC funding to US startups suffered its worst year-on-year decline since the third quarter of 2009. Among investors, the “growth at all costs” mantra has been replaced by an emphasis on profitability and sustainable unit economics. Companies that once generated hockey-stick growth by handing out subsidies to their consumers—$10 off your first order! 50% off your next five Lyft rides!—have been forced to recalibrate. In the meantime, startups that haven’t figured out the shift yet still need money to stay afloat, and many have secured fresh capital by making big concessions to investors. VC Bill Gurley has called such arrangements “dirty term sheets” and argued that they both “explode” and “render future financings all but impossible.” Hardly obvious good news.
The pre-industrial economy.
Exciting news—we have more data on the gig economy! The latest, “Independent Work: Choice, Necessity, and the Gig Economy,” comes from the McKinsey Global Institute. It’s very long at 148 pages though you can kind of get the gist from the executive summary. The report estimates that “independent” workers account for 20-30% of the working age population in the US and EU-15 countries, or about 162 million people. It assigns these workers to one of four categories: “free agents” (people who choose independent work as their primary form of income), “casual earners” (who choose it for supplemental income), “reluctants” (who make their primary living this way but would prefer a traditional job), and “financially strapped” (who do it for supplemental income out of necessity). Casual earners make up 40% of independent workers, followed by free agents (30%), the financially strapped (16%), and reluctants (14% and really, what a sad name).
Anyway, here’s what I found more interesting: The gig economy looks an awful lot like the pre-industrial economy. Historically, self-employment fell as countries industrialized and traditional employment became the norm as they got richer. Today, self-employment is still more prominent in low-income countries, where only about 30% to 40% of adults work as traditional employees. Among EU-15 countries, it’s also doing especially well in Spain, which has suffered from continuously high unemployment.
That’s not what you’d expect from listening to gig companies like Uber and Lyft, which have touted app-based jobs as the future of work. What they’re less likely to advertise is that the gig economy might be exacerbating income inequality and creating a new, modern divide between capital and labor. And, per the MGI report, that it’s more commonly associated with poor economies than the post-industrial US and Europe.
Uber and Lyft were illegal for a hot second in Philadelphia last week, as you can see from the headlines below:
Judges Ends Philly Uber, Lyft Ban (Oct. 8)
Uber and Lyft had a temporary OK to operate in Philly but that expired at the end of September. As per usual, both kept operating anyway. Then they got hit with the injunction and ignored that too, which turned out to be a wise move, as the injunction was quickly halted by a state court. Uber has since celebrated the move and Lyft magnanimously said that it remains “committed to finding a statewide solution that keeps this modern option available across the state.” Ah, disruption.
Is in fact the headline emblazoned in flaming blue-and-red font on the latest issue of Businessweek. The cover story is a profile of Cheng Wei, the founder and CEO of Chinese ride-hailing giant Didi Chuxing, a “cherubic and bespectacled” man who “wouldn’t look out of place in a video game parlor at 2 a.m.” It’s a great piece and I recommend reading the entire thing, both for a detailed accounting of the Uber-Didi battle in China, and for anecdotes like this:
[Uber’s Emil] Michael and [Didi’s Jean] Liu hammered out the deal terms in two weeks and then met Kalanick and Cheng at a hotel bar in Beijing to raise glasses of baijiu, a traditional Chinese spirit made from sorghum. Over drinks, the CEOs spoke of mutual respect and their admiration at how hard both sides had competed. “We are the craziest companies of our times,” Cheng says. “But deep in our heart we are logical. We know this revolution is a technology revolution, and we are just witnessing the very beginning.” He genuinely seems to admire Kalanick—to a point. “His alcohol tolerance is just so-so,” Cheng says, smiling.
Inside Rocket Internet’s Ailing Startup Factory. Uber Claims Lead in India. Chinese Cities Plan Tighter Ride-Sharing Rules, in Blow to Didi. Lyft fears release of “trade secrets” in San Antonio. “Uber has not been hesitant to take inconsistent positions.” Rinse cleans up Washio. Walmart wants more warehouses. Uber shutters instant delivery in Seattle. Eatigo nabs $10 million from TripAdvisor. Clearpath Robotics raises $30 million. Wine N Dine gets $2.5 million. No one is funding young startups. Iowa gears up for self-driving cars. Romance novelist drives for Uber. Dan Ammann talks driverless cars. Smart buses come to Austin. Silicon Valley Can’t Disrupt Craigslist. Corporate lunch boxes. Move forward. Ride in Snapp. Goodbye, Evercar. The Communications Decency Act does not permit “a lawless no man’s land just because it’s on the internet.”