The out-of-money moment is here. The party is over. But it sure was fund, so to speak, while it lasted.
By Wolf Richter for WOLF STREET.
It’s now a near daily litany: Startups, once assured to be fed endless cash to burn, are laying off people or are shutting down entirely as funding for them dries up, and as exits for investors get tough after the recent IPO fiascos, including Casper, Lyft, and Uber, and the messily scuttled IPO of WeWork that has pulled the rug out from under SoftBank.
San Francisco startup Starsky Robotics, which tried to develop autonomous-with-remote-human-control-trucking technology, and which had raised over $20 million in four rounds, has laid off the majority of its engineers and office staff after investors backed out of a funding round late last year. A potential buyer with deep pockets has not yet emerged either, senior VP Paul Schlegel, whose last day was January 31, told FreightWaves.
But it’s not the autonomous-driving industry overall that appears to be cutting back: According to Schlegel, 85% of the laid-off engineers have been hired by Google’s Waymo, GM’s Cruise, TuSimple (which has raised nearly $300 million, including from UPS), and others. It’s just that this company ran out of funds and investors refused to throw more money at it.
Then there are the cutbacks and layoffs among startups in the consumer DNA testing space, which has gotten tangled up in all kinds of privacy scandals, and now a drop in demand, but which received billions of dollars in funding over the years.
In January, Sunnyvale-based unicorn 23andMe cut 14% of its jobs, as consumer demand for its DNA test kits and family-tree discovery has slowed. CEO Anne Wojcicki told CNBC at the time that she was “surprised” by the slowdown in demand. “One of the most important things right now is to win back customers’ trust,” she said. According to CrunchBase, the company had raised $786 million in numerous funding rounds, including from Alphabet, Sequoia Capital, and GlaxoSmithKline.
San Francisco-based startup, Café X, which operated robot coffee shops and which had raised $14.5 million in seven rounds of venture funding, including $12 million in August 2018, closed its three coffee shops in San Francisco, and is now down to two robot kiosks, one each at the San Francisco International Airport and the San Jose International Airport.
It’s these kinds of business models that show how crazy the startup funding space has gotten. The thing is, coffee-making robots have been around for a long time. For example, the rest stops that dot the Japanese expressways have long used vending machines that grind and brew fresh coffee right in front of you while playing a digitized version of the Coffee Rumba. Pretty good coffee too. And you get to watch the process.
San Francisco-based unicorn Zume, which tried to use a robot mounted in a food truck that made the pizzas while being delivered to the customer, and then swerved into food packaging, had raised $423 million in venture funding, including $375 million from SoftBank in November 2018. In November 2019 – just a few months ago – SoftBank et al. tried to rope in more investors by hyping a valuation of $4 billion, which would have more than doubled the book value of SoftBank’s prior investment. Stroke of genius.
That’s the method SoftBank used to show gains on its WeWork investment before it collapsed. The efforts to double Zume’s valuation also collapsed. And in January, it reportedly laid off 80% of its staff after a wave of executive departures last year.
San Francisco-based ecommerce startup Brandless, which had raised $292 million in venture funding since its founding three years ago, including from, you guessed it, SoftBank, announced on February 10 that it had shut down, blaming a “fiercely competitive” ecommerce market that was “unsustainable” for its business.
New York-based HQ Trivia, which made what was once a reportedly “popular” game app, and which had raised $16 million in funding, shut down in mid-February, after its “lead investors” were “no longer willing to fund the company,” as it said in a statement, and as a potential buyer backed away. No money, no fun.
Palo Alto-based electronics maker Essential Products, which had raised $330 million in venture funding – including most recently $300 million in 2017, which was one deal that SoftBank had walked away from – announced on February 12 that it’s shutting down because it had “no clear path forward.”
San Francisco-based scooter-sharing unicorn Lime, which had raised $765 million, announced in January that it is pulling out of 12 cities – seven in Latin America, four in the US, and one in Europe, and that it would lay off 14% of its staff.
Its primary focus is now on making a profit, it said, which is hard to do with scooter rentals, because there is a lot of labor involved in collecting the scooters scattered around the city, taking them to be charged up, and then distributing them again to key points. And these scooters don’t live long, given the abuse they take, and have to be replaced frequently. Then there are the injuries.
There could be some use for scooters as a toy for tourists in a walkable tourist-rich city like San Francisco – to the dismay of pedestrians that have to dodge them on the sidewalks where scooters are not allowed to operate but where many of them operate anyway because they’re too scary to ride on busy streets.
The entire scooter space is now being decimated because it is becoming clear that this business model, other than attracting billions from besotted investors, isn’t functioning. The other big scooter sharing outfits – Bird, Scoot, Lyft, and Skip – have all laid off people or pulled from some markets.
San Francisco-based car-rental unicorn Getaround, which raised $403 million in venture funding, including from, you guessed it, SoftBank, announced in early January that it would lay off about a quarter of its staff. CEO Sam Zaid indicated at the time that SoftBank’s sudden unwillingness to throw good money after bad was to blame, that SoftBank has been a “thoughtful partner,” but “had their own challenges, and it’s hard to say that doesn’t have a ripple effect across their whole portfolio.”
No kidding.
San Francisco-based logistics unicorn Flexport, which had raised $1.3 billion, including from, you guessed it, SoftBank, at a $3.2 billion valuation a year ago, announced that it was restructuring its operations and laying off 3% of its staff “to move faster and with greater clarity and purpose.”
Then there is the entire cannabis space of startups, following years of exuberance, where in 2018, VC funds poured $1.2 billion into cannabis outfits, according to PitchBook, which was topped off in 2019, with VC funds pouring another $2.6 billion into 300 cannabis outfits, according to PitchBook. After numerous scandals, ranging from accounting issues to illegally growing weed, numerous startups in that space have cut staff and are struggling to stay alive.
The epic collapse of the cannabis hype is tracked by Tilray, based in Canada, which went public in July 2018 at $17 a share, which then spiked to $300 in September 2018, giving it a market capitalization of $29 billion. Shares have now collapsed back to $16.92 a share, giving it a still-ludicrous market capitalization of $1.7 billion, having lost $36 million last quarter on just $51 million in revenues.
All this investor money that was plowed into startups got spent by startups. It went into office rents and computer purchases, into fridges stocked with craft beers, into salaries and benefits and catered lunches and dinner parties, and it went to gig workers, and an amazing amount went into advertising on social media and other channels, and it went to insurance and financial services.
This money from SoftBank and elsewhere that came from all over the world was spent by these startups and their employees and gig workers and entered the GDP equation and cranked up the local economies but also housing prices and office rents in places like San Francisco, Silicon Valley, Seattle, Austin, and New York. And it was recycled as these landlords and brewers and office-furniture vendors also spent the money they’d received from these startups, and it got multiplied and it all cranked up the US economy.
The problem is that this generation of startups has no idea how to be a self-sustaining business that makes money on its own. They just burn money. When there is no more money to burn, the company shuts down. And the local economies, such as San Francisco’s, are going to miss this investor moolah that won’t get spent.
I’m not worried about subprime-specialized banks or investors in subprime-credit-card backed securities. If they take a beating, fine. But what does this bifurcation tell us about consumers? Read… Subprime Credit Card Delinquencies Spike to Record High, Past Financial-Crisis Peak, as Other Consumers Relish the Good Times. Why?
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The winds of financial discontent are blowing harder by the day.
The bonfire created by this tinder heap of financial stupidity is going to be epic.
Yes. Softbank start up dog walking app business WAG.
I see a few embers but haven’t seen anything other than california hyped fire call
why the panic IF at present it kills like 1/3 people a COMMON FLU DOES??
or is it really about something else(discussed at davos by/for 1% 1st)
I think it’s because it’s much more easily transmitted than a common flu, including having a long incubation period with no symptoms and yet transmissibility? Meaning that there are chances that many more people could catch this than would normally otherwise catch the flu?
Also I have heard that even those it does not kill are often left with some kind of long term lung damage. But I do not know if that is true.
Do you think China’s centrally controlled oppressive government would go through the lengths they have and seriously endanger their economy because this was just another flu?
Countries do not collude to torch their Potemkin villages.
Me thinks your tin foil had may be too tight.
I claim no insights but I do know this: Unrest over horrible pollution and, er, other things, has been growing. Wuhan was building a huge monster incinerator that was already making people very ill without any virus.
Spokesmen for this protest went to Beijing and vanished. I just love backstories. here’s another: Italy has free trade sweatshops full of Chinese nationals, especially big near Venice.
I’m concerned the protest organizers and participants may be somehow less energetic…
Think hard: I believe the financial Elite in general (with some exceptions) know very well, how to play All Sides of the Table – they put themselves at the center of the ‘Deal Flow” Riding the wave on the way up, and then Taking advantage on the way down to the bottom, and then – Buying up what makes sense, at the bottom, for pennies on the dollar… Rinse and Repeat as they say… The rest of us can only “Win” by getting as financially educated as we can, living simply and saving, investing and planning as best we can…
For the cannabis & vaping startups in particular how about:
“The Bongfire of the Insanities”
Yep. To quote another commenter, “the black swan has landed.” The government play-downs of the coronavirus dangers, calling it like a cold(!!!), are going to soon look ludicrous as our economy comes to a standstill.
Now, the majority of Americans are going to learn the truth about their system of pure capitalism with private insurers having the unfettered ability to “service” their poor customers with gusto. If you are not among the ultra-rich, and cannot afford to pony up thousands of dollars, the hundreds of thousands (or at least tens of thousands of co-pays/deductibles) in medical bills if you get infected and survive, will convert you to alternate options.
I have only one question that I would like to ask you when you first get your first, gigantic bill, if you get and survive the coronavirus: the “socialistic” Europeans, Canadians, Japanese, British, Australians, etc., do not look so stupid now, huh?
Is it possible that the health insurance, AMA, hospital, drug-company, and HMO executives, with their used-car-salesman smiles, did not have your best interests at heart?
America having “pure capitalism” is the dumbest shit I’ve heard in a long time.
mike/Brandon: historically, “laissez-faire” rapidly or inherently devolving to “crony”. Little sign ever of Smith’s “well-(note: not “self-“) regulated market.
May we all find a better day.
Thank you SO much for, once again, educating me and corroborating for me why I have been SO reluctant to invest in any of these, in spite of, sometimes, their very attractive potential going forward…
”You da man” Wolf!!
Meanwhile, I am continuing to try to figure out how to invest so that my much younger spouse is at least keeping up with inflation, other than dirt, which is SO not ”liquid” in any rational way???
Any and all suggestions welcome.
Thank you.
Edit,,, forgot to say also, other than metals, with which we have more than we can reasonably expect to be able to carry already.
German ETFs are around 15 P/E – decent companies, decent dividends. Over time they have kept pace with the U.S. stock index.
There are many individual stocks, U.S. and international – slow and steady growers with low debt – that pay growing dividends. A stock market is a market of stocks and there is always something on sale. I buy like clockwork month after month and reinvest all my dividends.
I especially like small caps with low volatility and growing dividends that very few analysts cover.
Over the past 6 months bargains have been harder to come by in the U.S., but there are many great international companies worth looking at.
The inflation you are seeing now is going to go bye bye for awhile. Deflation in all things is straight ahead. After deflation I believe fiat printing is going to reach holy @#$% ludicrous speed.
At this point in time I see three semi-sane choices…
1. Stay in cash and wait until this burns down. There will be a time to buy equities.
2. Sit in treasuries and wait until this burns down. There will be a time to buy equities.
3. If you are not opposed to risk you can go into an inverse non-leveraged ETF. Please understand these products before you dip in.
But do not listen to me I am just some shmuck with a keyboard and an internet connection.
A schmuck with some pretty practical advise me thinks.
>>The inflation you are seeing now is going to go bye bye for awhile.<<
No so fast. Scarcity of necessary goods can create massive short term inflation. An example is the GM auto part my friend needs, which is made in China. It has been out of stock for 6 months at every U.S. GM dealer and auto parts supplier. There are a few for sale on eBay for $350 to $450. The list price for the part used to be $70. Gee :-(
Only if supply drops faster than demand. Given the state of the precariat and the over capacity a decade of financial shenanigans has bought I am not sure this is going to be the case for most things.
But if you need a new part for a 1990 GMC Jimmy, sure.
That particular type of inflation due to prolonged mass shortages would also be coupled with prolonged mass unemployment. You’re talking an economic failure for the history books. Otherwise in terms of real wages for the average worker, any manufactured goods will only get cheaper most likely. But if population growth in large cities keeps up, they can’t make more land, so the fight over housing will probably keep housing inflation high. Idk, if Musk survives this maybe he’ll get around to building hyperloops for the bedroom communities of the future. Or maybe more people will just be able to work remotely. Or maybe many of us will end up living in the blade runner-esque urban underworld with japanese style cubby holes to crawl out of every morning. Is it morning? Can’t see the sky hmm.
I still don’t think we’re at the next big collapse yet. Just wait for the next big fed speech that holds steam in the markets.
Don’t get me wrong, I’m not calling a bottom to this correction yet. The slowdown and coronavirus are powerful narratives for the time being.
In coming months we will see a stabilization of the coronavirus story followed by a big monetary announcement, which will put the next effort into re-flating this bubble. It will probably end in another V-shaped recovery in stocks because there will once again be too much money desperate to find a home.
Why do you constantly refer to your “much younger spouse”? Do you think you are impressing us?
Zantetsu,
It’s an existential thing because she is likely to outlive him by many years, by two or three decades maybe, and providing for her after he’s gone produces additional challenges that he would otherwise not face — that’s how I interpreted his phrase. I may be wrong though.
“…much younger and gorgeous spouse” would be more the brag…I assumed he was concerned for her future livelihood .
Just seems weird to me to have to constantly refer to it. There are many ways to express a desire to secure your financial situation without having to use the phrase “my much younger wife” every time.
Careful, your seemingly apparent envy may be clouding your interpretation.
Trust me, I am not envious.
Isn’t it possible that VintageVNvet is the hot cougar wife? Aren’t we being a little sexist assuming that Lolita needs to have her future secured?
Sure was “Fund” while it lasted. Best Pun EVER.
Good one!
If I knew all it took to burst these financial terrorists bubbles was a virus… I would have studied to be a virus maker!
The funding started running out last year before the virus was on the horizon.
Wolf,
Conceptually, the difference in VC bubble 2.0 may have been that VCs thought they could pick winners and losers and get brain dead ideas across the IPO finish line by simply pumping huge amounts into a limited number of startups – they would *force* champions into existence (despite not really knowing if the end consumer dogs even wanted the dog food).
The saddest part of the SoftHead type strategy is that by hyper concentrating bets, decent startups at more modest scale likely did not get funding.
I wonder how the opposite shotgun startup approach run by some incubators/accelerators is going. They tended to fall out of the news with the rise of mega-fundings about 4 yrs ago.
Cas-another example of the possession and easy use of a tool (financial ‘engineering’) becoming more important than the much harder goal of building and sustaining the ecosystem of a viable and valuable business…
May we all find that better day.
A fairy tale ending where sickness inoculates the sick to cure the ego of fools.
Those who saw the fine fabric, the rest of us called invisible, will never have to admit their error and continue to claim those of who could see the emperors naked bottom they were either unfit for his position or hopelessly stupid.
Corvo-18 destroyed your fortune, not the bad fundamentals I ignored.
Doood ! All u need is a Crispr …
Oh! But, But, but its the corona virus that is causing sentiment to wain.. Its all China’s fault!
It isn’t the bubbles or the Unicorns or the Zombies. Or the massive mal investment or the stupidity at places like GE and Boeing. It isn’t that Congress is a bunch of children who can’t play together on the playground of life and haven’t been able to pass a smart budget with smart priorities for decades.
Covid-19 hasn’t actually reached the US yet. The supply chains aren’t drained empty. The virus didn’t cause the lack of demand for autos or other consumer goods. But that is what the media I see, read and hear all say. But they are correct in that greed has turned to fear and that isn’t good for bubbles.
TPTB better figure out how to stop this carnage in the markets really fast or it is going to have a life of its own.. If they can?
According to a recent Manhattan Institute study, “in 1985, the typical male worker could cover a family of four’s major expenditures (housing, health care, transportation, education) on 30 weeks of salary. By 2018 it took 53 weeks. Which is a problem, there being 52 weeks in a year.”
But let us blame the coronavirus.
Another way of looking at this is to say that a household used to be able to survive with one earner…now two is pretty close to mandatory.
Leaving political arguments out of it, I wonder if the two earner household has been somewhat self-defeating since it basically doubles labor supply with predictable consequences for labor pay.
It isn’t that couples have doubled income so much as they are now splitting the same old income. This may be masked by inflationary trends in sectors with the worst productivity records (education, healthcare, housing)
Not literally true…but more true than the expected doubling of effective HH income.
@Cas — Good points, and I see it more like 100+100=150, minus child care costs and other things you may not have to pay for with a one-earner household (newer second car, e.g.)
Healthcare has a great productivity record. Things for which you needed to stay two weeks in hospital are now one day affairs. See for example hip replacements. Problem is more on the demand side.
Cas-Have had to make the straightforward (supply-demand, including a demand for immigrant labor to further suppress labor cost to business or a now-vanishing middle class) mathematical labor-doubling argument (VERY gently) with many of my distaff and not-so-distaff friends for some decades, now. The gender identity/inequality/xenophobia issues that have always existed pop much smoke and lay a thick fog over the viewing of this situation (ah, that pesky human psychology…).
Again, may we all find that better day.
Economicminor, I agree with you. Adding in the context of COVID-19 perceived worldwide epidemic, we must realize that this a ‘red herring’ tactic to divert our attention to what is ‘really’ going on. An example, all those luxury and electronic goods shipped from China (during the Hong Kong riots) to US, Canada and Europe has not drained the supply chain and trading of goods will never cease. Even ‘pirates of the oceans’ thrive. Simply put: Consumers are not spending because they are ‘maxed’ out!
We cannot be ensnared by every ‘cash funded’ media, the Lie and Betray platform intended to increase ‘Mental Illness’ in the community and society. Delusion versus Reality!
We all embrace Wolfstreet.com for its integrity and honest analysis. We love you, Wolff. Bring more on!
And they’re soon gonna spend less cuz they’ll be ‘maxed in’ due to quarentine ! I don’t think even smudge pots & Boschician birdbeak plague masks are going to be of much help.
Run, do not walk .. to your nearest neoCisternian Monastery .. tell them you majored in ‘Letters and Scribe’
Knowledge of agriculture/viticulture/animal husbandry/herbology wanted.
Austerity required for entry …
Knowledge of medieval weaponry & early tennez technique a double plus ..
Knowing how to grovel towards, and connive with, impatient and fickle Warlords is mandatory!
Must like soup 24/7
You’all may laugh, and call me a naive .. but you just never know when a reset might come your way ..
I truly believe this is it. There is no stopping the deflation tsunami straight ahead. All indicators, outside our ridiculous unemployement rate, told me this should have started late last year.
>>The supply chains aren’t drained empty.<<
Don't worry, I am doing my part to drain them. I have to find more storage space (that is safe from theft) to store my growing food supply. I'm picking up my second freezer tomorrow. Next up is to find a good bug out location with a decent medical network nearby.
I'm old, so I have an extra big target on my back for the coming pandemic. I am planning ahead literally to save my life and therefore I don't care about the cost.
S
My best friend and past neighbour did this for Y2K, He had freeze dried products, stuff packed in nitrogen, lots and lots of dried staples, and tons of great granola type bars that my kids used to raid. :-) He kept a stock chest list all dated and organised. Maybe there is some middle ground? He had a helluva time rotating and consuming his stores, including the drums of fuel in the back yard. He died at 57, unfortunately. I shudder to think what he would be doing now.
I have also put away many supplies that are available in a pinch; flour, soup stocks, and we too have two freezers. However, this is just our normal self-reliant type lifestyle. One freezer is for garden produce and the other is for meat/fish and bread. There are bins of spuds in the crawl space. It’s nice not to have to go to town for shopping whatever the situation. Having stores allows one to choose to go, or not.
Cash is good to have on hand and maybe some beer and wine making kits? Why not? :-) I am also partial to Crown Royal and spiced rum.
Robert Shaw says: Anyway, rum’s not drinkin’, it’s survivin’!
I don’t see why not stock up now with nonperishables, paper goods, freezer goods, booze, etc you would buy anyway within the next six months. Also thinking about people who live near me who I know will not be prepared if there is a quarantine because hey, this is America, what could go wrong.
Covid-19 hasn’t actually reached the US yet. The supply chains aren’t drained empty.
Give it some time. Around April, I’d guess, will be when the virus officially arrives and also about that time when people realise that their stuff on back order is either never going to arrive or will be arriving so late that it is not needed anymore!
During 2019 we would more and more often experience 3-6 months of procurement to get a full set of nominally ‘off the shelf’ components for machine construction, often having to substitute components. Already, trouble was brewing back then.
With the virus in the open, China shutting down, all of the suppliers gets to call “force majeure” and everyone planning to deliver anything will be screwed over royally!
On the ‘sales side’ and ‘the investment side’, they will avail themselves of the rare opportunity of clearing out a lot of dead investments and failed projects – blaming of course China.
TPTB will just switch to the short side and clean out ‘The House’ for the next game !
Wolf, I wrote this blog up on Bain’s 2020 Private Equity review. There are some pretty damning numbers in there if you look at them… LPs really nailed the top of this cycle. GPs have bought far more companies than they have sold for years, who exactly do they think they are doing to sell them to? Bain has no answer and doesnt really ask the question either.
https://strategicmacro.blogspot.com/2020/02/has-private-equity-lbod-hotel-california.html
https://www.bain.com/globalassets/noindex/2020/bain_report_private_equity_report_2020.pdf
I still see PE oversubscribed. Managers are looking for opportunities to deploy record amounts of committed capital. I don’t know about LPs calling a top.
Deeply flawed system…
Appreciate you not saying it was “Fun” while it lasted because for many of us it wasn’t/isn’t. It was hell, actually, for those of us who have been/are being bled to death financially and ultimately displaced or will be eventually from our homes and communities due to the skyrocketing costs of living. None of this would have been possible without money being made available by the trillions to a relative select few by the Fed and their accomplice central banks around the world. These people are financial war criminals for the harm they’ve caused through their massive distortions.
– Why Always blame the FED for everything ? It was the Venture Capitalists who funded these unicorns. Not the FED.
– I assume it was VCs (like SoftBank) who poured the money into these unicorns and lost tonnes of money. They simply lost too much and therefore became more cautious after the WeWork disaster.
Interest rate suppresssion leads asset managers to seek new sources of growth, prompting investors like Goldman Sachs, Fidelity Investments (and more recently Vanguard) to jump into the VC sector. sector.
https://techcrunch.com/2016/01/11/interest-rates-unicorns-and-what-the-fed-means-to-silicon-valley/
Willy2: When money is dear, you don’t speculate with it on pie-in-the-sky ventures that have little to no chance of succeeding and require another sucker/bagholder to make the investment profitable. If $15 trillion of rates weren’t negative, interest rates at or below 0% for a decade, etc. very few of these doomed startups would have been funded or at least wouldn’t have achieved such ridiculous valuations. Then many fewer people would have been rewarded with windfall gains, outsized salaries, and the massive hiring for value destroying ventures that have jammed the cost of living through the roof and displaced or bled financially dry so many people with regular jobs and weren’t participants in the bubble game. The Fed’s massive money printing and interest rate regime is the driver of all of this.
Jerome – you’re so right. Good posts.
The Fed set interest rates below market. Everyone (retirees, pension funds, you name it) frantically reaches for yield. Bubbles form in VC and PE and junk bonds and RE and stocks. If the intermediate bond index was paying 5%, none of this would have happened. The Fed is completely and totally responsible, and should be eliminated.
Happy1 — Guess who else is Scheming to play thee money of the Baby Boomers-Retirees-Elderly — Charles Schwab just ‘Acquired’ a Fixed income company
https://www.bloomberg.com/news/articles/2020-02-24/schwab-to-buy-fixed-income-firm-with-10-5-billion-of-accounts
My take on the FED is that it was forced to act to stabilize the system because the federal government was unable to act responsibly. The government acted more like children playing their war games and to hell with the infrastructure or the debts they were running up. It was both parties. No wonder Trump won and now Sanders is doing so well. This is Congress’ fault.. and the last 4 Presidents. The federal deficit is unsustainable. The only way that Congress could continue to spend recklessly was for the interest rates to be low.. So the FED was complicit but they were being blackmailed.
Because the FED is a larcenous group that bails out banks, oppresses interest rates, drives asset bubbles, punishes prudent action and prudent savers, picks winners and losers, and is self serving and corrupt.
Like I said before, What if ZIRP is real?
What if existing businesses aren’t making profits, and the profits they’re not making are not there to pay interest on the money they borrowed to grow? What could the interest rates be then?
Somebody said up above to stay in cash until this blows over — until real businesses show up that will be operating into the future. When will that be? Can we wait that long?
Since 1913, Fed Res has stolen us blind for generations. All for their OWG agenda or worse.
– Here another pillar under the housing market is crumbling or – at least – weakening.
The party is over, the punchbowl has been taken away and the biker-gang security guards are heading in to rough up and toss out the guests still hanging around the house.
The number of US IPO’s launched without net income reached spectacular heights last year. Similar happened in 1999, but not to the same degree. Interest rates were higher in 2000 when the euphoria turned to sorrow as the market crashed. Startups were denied loans and declared bankruptcy.
If only companies would just release some really awfully bad quarterly results so Wall Street can turn this around and rally to all time highs like it used to and things can get back to normal agian.
As I was getting my haircut this morning I wondered how much longer this mundane event can be done with corona virus breaking out everywhere. We NEED robotic hairstylists!.
Surely this is a startup a Travis Kalanick or an Andy Neumann type could raise billions from. Combined with facial recognition technology the ‘robotic hairstylist’ is a product whose time has come! Deluxe versions could offer hair coloring while the basic man’s version would only require the owner to insert his head every month for a quick ( and inexpensive) trim.
Unit,
It’s the Flowbee
(I don’t know if I’m allowed to post youtube links)
SNL ran a parody sketch of an ad for that device calling it the “suck cut”. At the end of the ad I think Chris Farley said, “gee, it sure does suck”.
Bonus: free “haircuts” for (late) investors!
Double applause.
One for the clever pun.
And one for the username of a virus.
unit472 — The result of your thoughts on ‘Robotic hairstylist’ would only increase the price of a man’s haircut by 500%. Do you know how much the female population spends on their hair — including ‘false’ hair extensions, coloring, special shampoos and conditioners, combs, brushes, disinfectants?
Unit472:. Free haircuts can be obtained:
a) quickly, by cutting a hole in a piece of plywood, sticking your head in the hole, and then run a lawn mower over the hole, or
b) slowly, by buying a hair trimmer set and cutting your own hair!
I have cut my own hair for decades!
Not only that I am nearly blind! (Have RP.)
Actually, the argument can be made that the SoftHead style VCs were inserting their heads in a different kind of (organic) hole…
I think I recall bugs Bunny cutting Elmer Fudd’s hair that way
Or possibly one of the stooges
I just met a guy who told me he had been cutting his own hair for decades!
I told him, it looks like it!
Combine this with the Holy Grail of internet startups, Online Dentistry!
Wolf
Good summary and in reading it was reminded of the “new issues” that were floated in the South Sea Bubble of 1720.
Both now and then were remarkable manias, not to overlook 1929.
And all five of the great financial bubbles from 1720 to 1929 were followed by sharp collapses and lengthy post-bubble contractions.
In the early 1700s Holland still hosted the world’s commercial and financial center.
And the Dutch had a way with language.
A boom was accompanied by “easy” credit.
The bust with “diseased” credit.
Most of these IPOs are practical business models: a mattress company, a company which repurposes office space, transportation companies which synergize less efficient last century cab companies? The expansion of easy credit is about to end and with it some pent up inflation no doubt. If most of rise comes in the service sector as wages we might get through it. I mean would you rather drive a cab, or work for Uber?
“practical business models”
Only practical if invt is appropriately scaled to actual proven results…simply *assuming* you can overpay real estate owners in order to re-lease the office space they were not able to lease themselves…is sort of the opposite of practical.
RE owners had/have tons of idled space – WeWork’s “genius” was to scoop up great gobs of it without really asking why it was available in the first place, and what alchemy WeWork had that traditional landlords did not – besides a deep VC checkbook and a willingness to ignore market reality.
Sort of the opposite of practical.
Drive a cab.
More rides per hour. No capital risk.
A million dollar medallian
The virus is just pairing back some layers of deception that have been there for quite some time. remember, it’s all leverage. Leverage comes easy when there is a rumor of grow. Take away the rumor of growth and replace with a certainty of deflation, then you leverage becomes impossible has a measure of sanity comes calling. It’s interesting that a virus started the moment of the ‘great unveiling.’
Interesting that US manufacturing(granted, this was heavy generated by exporters this year so far as you would expect) is pumping production/inventory during this subprime loan bust/virus demand sucking timeframe. Looks like Q3 was the peak for subprime finance this cycle.
Reminds me of the summer of 2007 quite a lot right now. Sales were beginning to implode and the demand ramp was impressive up until July despite the falling sales.
This mess was driven by ultra low interest rates, if people and pension funds could earn a 5% return on bonds, none of this would ever have happened. The Fed should have been winding this foolishness down starting in 2010 or so.
Yeah, but how does the economy grow without debt finance? That is the problem. Now you either find something new to invest in to create real profits without a bunch of debt or die. It’s simple as that. I would argue all capitalism starts from debt. It was just in the past, all tied into the scientific revolution driven tech that created the industrial revolution, then consumer revolution and the “age of abundance”. Its all done now. If there is nothing next, capitalism will be more and more debt driven with no purpose.
Yeah, but how does the economy grow without debt finance?
With equity finance.
All production is from the application of labor to the earths resources. Why would debt be needed?
They don’t consider it “foolishness”.
From yesterday’s opinion piece by former Federal Reserve Bank of Minneapolis President Narayana Kocherlakota in Bloomberg:
“The Fed’s rate-setting Federal Open Market Committee holds its next meeting on March 17-18. I don’t think that the FOMC should wait that long to deal with this clear and pressing danger. I would urge an immediate cut of at least 25 basis points and arguably 50 basis points. That’s a cheap insurance policy for the economy that the Fed shouldn’t pass up.”
Ugh…bespeaks the blindness that has imposed 20 yrs of counterproductive ZIRP and will sooner or later impose NIRP.
Walking definitions of insanity.
I would take some comfort if at least one or two members of the Fed brain trust at least acknowledged the actual empirical record of ZIRP.
Good point, the better argument is probably to eliminate the Fed.
Won’t change a thing. The Fed is a big nothing in the long run. You don’t get it and it shows.
The Fed should have been winding this foolishness down starting in 2010 or so.
They couldn’t, and they still can’t. The pretenses can only be maintained with increasing debt. From the fact that central banks are still in emergency mode twelve years later you can infer that the 2007-2008 disaster has never been resolved and is merely under wraps.
The US Fed alone has been carrying trillions in toxic waste all this time. Enabling the financial industrial complex to bleed the real economy and offshore the proceeds ensures the Fed will continue to carry those trillions for years to come.
In the meantime the FIC has overreached again, according to its nature, so you can expect the Fed to be carrying additional trillions in financial sewage in due course.
I love capitalism. Even the stupid part that we call Unicorns. It’s all good. It’s going to be bad for those working in these Unicorns, but good overall.
Someone asked earlier what to do with cash now? Buy companies that make UV lamps and maybe Clorox. You’ll get a nice bump for a few months, then get the hell out. Maybe videoconferencing companies too.
I love capitalism.
I like it too, when it’s proceeds are used to properly support and elevate the general population and to preserve the world’s ecological foundations.
Instead it’s mostly a mechanism for enriching the wealthy by making most people unhappy and externalising costs that are destructive, not only environmentally but socially, politically, and ultimately financially. It doesn’t have to be this way, but it’s the way most people have been suckered into.
Excellent point. Thanks for making it.
yvw
*cries in marx*
And short the cruise lines?
The Fed will respond accordingly. Extremely laughable.
Wolff, I would like to add that ‘city’ governance’ as the primary enabler of this Collusion. The ‘State’ governance turns its blind eye to keep the revenues flowing.
In the specific case of the ‘State’ of California, where ‘tribes of greed’, especially non-profit status, proliferate beneath the ‘Califonia easy’ lifestyle propaganda.
“tribes of greed” I prefer matrix of mafias
Seems that Silicon Valley has “progressed “ to the point where they are offering solutions waiting for problems instead of solutions to problems
If you pay more, you can even get the robot to spit on your food.
Or just dont tip the robot. It might go “Terminator” on your bum.
“Seems that Silicon Valley has “progressed “ to the point where they are offering solutions waiting for problems instead of solutions to problems”
Sometimes this approach has does find a real problem. An Indian ridesharing company called Ola Cabs made an April Fool Day’s spoof video about mobile restrooms that went viral.
It got such tremendous feedback, that Ola Cabs collected a donation of a rupee per ride last year over six months to build toilets for over 20,000 people across India, partnering with an NGO.
https://www.thehindubusinessline.com/news/variety/how-olas-april-fools-prank-video-turned-real/article26704210.ece
Tee hee hee. I just finished reading Dan Lyons’ book “Lab Rats”
It seems many of these companies going under are the ones that some call “mommy startups” – startups started by young men who want services to do things their mothers used to do for them; ie. laundry, cooking, whatever.
And I’m also happy that Softbank is getting pummeled again; they already struck out on “WeWank”.
Treasury Yields are way down. Mission accomplished.
Government can borrow cheap and all it wants for anything including the corona virus.
In the end of the day, they aren’t slaves to the stock market.
Famous words.
San Francisco-based startup, Café X, which operated robot coffee shops and which had raised $14.5 million in seven rounds of venture funding, including $12 million in August 2018, closed its three coffee shops in San Francisco, and is now down to two robot kiosks, one each at the San Francisco International Airport and the San Jose International Airport.
Now do I go to a coffee shop because there are robots that serve coffee?
Or do I go to a coffee shop because the coffee is great and I get personalized service?
Are the founders of this 8 years old?
Whomever funded that concept (and the rest of these ridiculous ideas), deserves to lose every penny.
Willy Winky,
I’m so proud to have just discovered that we’re old friends going back to 2011, and you’re among my most loyal readers dating back to Testosterone Pit, posting under numerous screen names. Please read my reply to your other screen names in that thread, Bradley Pitt and Messiah. You’ll have some fun. Cheers!!
https://wolfstreet.com/2020/02/24/stocks-plunge-traders-confused-this-wasnt-supposed-to-happen-complacency-exacts-its-toll/#comment-232293
https://wolfstreet.com/2020/02/24/stocks-plunge-traders-confused-this-wasnt-supposed-to-happen-complacency-exacts-its-toll/#comment-232434
Well, if it was the robot from Lost In Space then I would be ok with it, especially if it gave market tips like “Danger Will Robinson”.
Are the founders of this 8 years old?
That was my question, more or less. These guys seriously lack the lobes for business and should not be trusted with more than a modest allowance.
You know it’s bad when the company closes because its officers admit they don’t know what they’re doing. A fool and his money are soon parted, but sometimes you have to wonder how they got together in the first place.
Not ashamed to admit I go to my local cafe because of the cute barista. She makes my day, always a smile on her face. ?
Unamused-acquisition of a shiny tools (‘free’ money and financial ‘engineering’) and a belief in constant fables about what a successful business is and requires
(peddled in no small part by our entertainment ‘industry’ since the end of WW2). We should not be surprised at the result when a monkey is handed, then starts to operate, an M60…
A better day to us all.
Restraint? ZIRP just got a fresh leg up. The Fed will not and can not let this market sink UNLESS ……..they have plausible deniability. What scheme would deliver this? Can a pending Pandemic be gamed? Chances are they may just be incompetent. There is one thing I do know. Americans will have a snot slinging fit if they cannot get parts for their riding lawn mowers.
Americans will have a snot slinging fit if they cannot get parts for their riding lawn mowers.
They won’t be getting their heart medications either, so it evens out.
“amazing amount went into advertising on social media” : I wonder if there will be an impact on the current “social media” behemoths. Perhaps their operations are/were indirectly being supported by the (previous) VC spending splurge. Their revenue(s) will surely take a hit, and I’ll get my shadenfreude moment.
I wonder if there will be an impact on the current “social media” behemoths.
Devoutly to be wished. A digital social life is no substitute for the real thing.
I prefer live people to their screen representations. Present company excepted.
“Cumulative Credit Losses”
;)
Stay flexible I say because….He who uses crystal ball to forecast the future will be forced to eat broken glass.
A bunch of arrogant start-ups that made no sense, that could never have succeeded without constant investor money, that forced legitimate businesses into bankruptcy, are starting to run out of investor cash, and are failing! They won’t make any more money! :(
My response: Sad Trombone
https://www.youtube.com/watch?v=yJxCdh1Ps48
You forgot Blue Apron.
Bobber,
That’s no longer a startup since it had an IPO some time ago, but it fits into the ballooning category of crashed-and-burned IPO stock :-]
“In January, Sunnyvale-based unicorn 23andMe cut 14% of its jobs, as consumer demand for its DNA test kits and family-tree discovery has slowed.”
Maybe it’s because people don’t like their genetic code being given to law enforcement without their consent as has been done by at least one other service. The DOD has also warned it personnel not to use such services:
Pentagon Warns Military Personnel Against At-Home DNA Tests
The tests, from companies such as 23andMe and Ancestry, have become popular holiday gifts, but the military is warning service members of risks to their careers.
https://www.nytimes.com/2019/12/24/us/military-dna-tests.html
I was gonna get one, but, I suspected something like this would happen. I didn’t expect the news about it to come out so soon. Even worse, then can find you by your relative’s DNA.
On the brighter side, there have been some ideas that most felt had no chance as a venture and met with scorn, but did turn out OK:
Opinion: predicted the invention would be ‘a conspicuous failure’ and a ‘unworthy of the attention of practical or scientific men.’
Product: the electric light bulb.
Opinion: Thomas Edison said that ‘fooling around with alternating current is just a waste of time. Nobody will use it, ever.’
Product: AC electricity
Opinion: Western Union saw the ‘obvious limitations of his device, which is hardly more than a toy.’
Product: the telephone.
Opinion: American radio pioneer Lee De Forest proclaimed the device a commercial and financial impossibility, calling it ‘a development of which we need waste little time dreaming.’ 20 years later film producer Darryl Zanuck said that ‘people will soon get tired of staring at a plywood box every night.’
Product: television
Opinion: Wilbur Wright proclaimed in 1901 that ‘Man will not fly for 50 years.’
Product: Airplanes
Opinions: “it will never, of course, come into as common use as the bicycle.” Or, “the horse is here to stay but the automobile is only a novelty – a fad.”
Product: Automobiles
Opinion: The silent picture, said Charlie Chaplin, “first of all, is a universal means of expression. Talking pictures necessarily have a limited field, they are held down to the particular tongues of particular races.”
Opinions: Lee De Forest said of space travel, ‘I am bold enough to say that such a man-made voyage will never occur regardless of all future advances,’ while The New York Times similarly stated: ‘A rocket will never be able to leave the Earth’s atmosphere.’
Product: Spacecraft
Opinions: Ken Olson – founder of computer company Digital Equipment Corp – said in 1977, ‘There is no reason anyone would want a computer in their home.’
Product: Guess
Opinions: Time magazine, in an article titled ‘The Futurists: Looking Toward A.D. 2000,’ the magazine claimed: ‘Remote shopping, while entirely feasible, will flop – because women like to get out of the house, like to handle merchandise, like to be able to change their minds.’
Opinions: In 1981, Motorola’s then director of research Marty Cooper, who just eight years earlier had made the world’s first phone call by cell phone, stated that ‘cellular phones will absolutely not replace local wire systems. Even if you project it beyond our lifetimes, it won’t be cheap enough.’
This is called Survivorship bias. Yes, you got Apple, Microsoft, Google, etc. but what about all the tech startups or companies that failed? We don’t talk about them do we?
It’s how the game of business in the U.S. is played, similar to baseball. That’s why the King of Home Runs, Babe Ruth, was also known as the King of Strikeouts. Lou Gehrig, Mickey Mantle, and Willie Mays had also broke records for home runs and strikeouts. As one sports writer wrote, “This isn’t because baseball players are getting worse. It’s because Ruth gave those who came after him permission to fail in bigger ways than before … and to succeed in bigger ways than before.” Even Steve Jobs, Bill Gates, and Mark Zuckerberg dropped out of college. Were they once also failures?
So when are the credit downgrades coming? One would think there has to be some impairment on the ability of BBBs to pay back loans.
Well, at least corporate buybacks will be a lot cheaper now.
the good thing about the robot companies shutting down is that they will not replace humans. Not that they would ever do. Productivity in this business cycle is very low so robots were not going to replace humans.
Amazon will be drone pooping certified free of cv19 packages on us before this is over with after buying the start-up that cooked it up from a VC for 100B. I’m hoping for a steady low tech position ringing the bell to bring out your dead. Not much room in the way of advancement because Bezos will eventually replace me with a robot. May take a while if it’s made in China.I might have a good run.
I’m going to put my conspiracy theorists hat on and bet that Masayoshi Son’s company SoftBank, was given trillions of dollars of loose credit by Haruhiko Kuroda, Governor of the Bank of Japan or maybe Masaaki Shirakawa the guy before him, who in turn was threatened by the powers that be in Washington/Wall Street to tow the line, so that trillions dollars could wash over US based businesses and startups, spurring the economic boom of ZIRP in-fueled funny money over the last decade which kept the US from sliding into a depression. Huge run on sentence there which was intentional.
Shawn,
I don’t think your scenario would be very likely in Japan, given the unresolved tensions and attitudes between Japan and Korea, the Japanese and Koreans, and how Japanese people of Korean descent, like Son, are treated in Japan. I don’t think he got any special favors.
Wolf, what’s with all the negativity? How ’bout a post on how we all own a piece of the Social Security Trust Fund? Thank God for FDR for thinking ahead and settin’ us up a real live reeeetirement program!!! Yee haw!!! We done be real rich!!!
Here it is, my most recent annual update, including charts, obviously: https://wolfstreet.com/2019/10/13/social-security-trust-fund-recovers-a-tad-in-fiscal-2019-interest-rate-earned-sinks-to-record-low/
Remember the DotBomb. The went from wanting 500K engineers to 300k+ on the streets in three months. I ate around $300,000 dollars in wages owed to me. Not to mention a house. It was pretty much the same scenario. All the money went to upper management, marketing and promotion. And when it it all went down. Everyone else, employees and investors were left holding the bag. After the bomb most all R&D in the US stopped for almost ten years. (And they wonder why China is ahead.) This time the crash will be worse, in that there’s a lot more stupidity and money involved. Things like 10 million in funding for a phone apt to sort social media on your phone. I’ve got one startup going with no funding that actually works. It does brain reactive analysis to determine change s in brain behavior. Things cause by thinks like concussions, minor strokes, drugs and all sorts of other things. But trying to get funding is a real bitch. (I guess because its not a phone apt.) And it’s not a scam.
Dirk, I don’t know where you are, but after reading Dan Lyons’ book “Lab Rats”, I’d say SillyCon Valley is NOT the place to ask for funding. You might do better looking for a VC in, perhaps, the Boston area, preferably one that specializes in biomedical technology.
Gran artículo Lobo
It appears the Bates cairn has been tampered with in ways we cannot fully appreciate.
And short the cruise lines?
At a certain point not every company can just say they are the amazon of _____ with a made up TAM. There is no doubt that Lime and Bird scooter will be mentioned in the same sentence as WeWork when the lights turn on. Scooters are one of the great pump and dump schemes of all time. Last VC’s in on these companies will be rollerblading to work.
Electric scooters are a spinoff of bikesharing, and we all know how that turned out… and now there’s the added bonus of a public opinion turned squat against them.
Plainly put people are not exactly happy the juvenile delinquents riding this stuff seem to be completely above the law while regular people can be rebuked by the police for whistling in the street. See how the usually ruthless Swiss police limit themselves to advise “caution” to scooter riders through a ridiculous PR campaign, and only after a highly publicized accident in which an old lady fell to the ground and broke a femur after being bumped by an e-bike rider who didn’t even bother to stop and check on her. Why the extraordinary leniency towards these folks?
Like Uber and AirBnB these businesses live, and prosper, in a grey zone of legality where legislators and regulators, always keen to stick their noses everywhere, do not dare to thread. See how real estate speculation of the basest kind is always protected even after long lectures about “the need to protect our territory” or “we need to plant trees, not build houses”.
Then people ask me why I have zero trust in mankind.
At least electric scooters is better than pogo sticks.
https://sanfrancisco.cbslocal.com/2019/05/31/swedish-startup-to-bring-pogo-sticks-to-s-f-as-e-scooter-alternative/
This is the WTF business model were you thinking while high? Even the name “Cangoroo” is ridiculous funny.
The scariest thing is at no point during the presentation none of the prospective investors said “Gentlemen, we’ve all had a blast. This joke about pogo sticks was really funny, and great way to put us all in a good mood. Now, what are you trying to sell me?”.
As an aside I am as of this moment lobbying city governments to legally authorize pelting with rotten vegetables anybody over the age of 10 caught riding (?) one of these things. Apparently my original idea of using bricks ran against “human rights” or something lame like that.
10 minutes later and I’m still laughing. Thanks
With all these hyped “unicorns” dropping dead, and investors presumably becoming wiser (as well as poorer), what’s not to like?
Hopefully, these events can also knock another adverse trend on the head. It’s something that I call “the rise of the petit-rentiers”.
First we had buy-to-let (B2L). That was bad enough. But now we have B2L2T (buy-to-let-to-tourists).
These people (boomer-age individuals, generally, not corporates) use their access to capital to buy up properties, turn them into holiday lets and rely on platforms like Air BNB to fill them. They tend to ignore local regulation where it exists, and certainly couldn’t give a damn about the effects on housing availability (or cost) for younger people.
As you can see at first hand in Barcelona, Edinburgh and elsewhere, these B2L2T petit-rentiers are a scourge. It’ll be interesting to see if the virus-related slump in tourism hangs them out to dry. (Here’s hoping).
Just one word describes all of it… PONZI
San Francisco startup Starsky Robotics…has laid off the majority of its engineers
They should have taken that partnership with Hutch…
I find this article a bit overblown. Early venture investing means accepting that 80% of your investments will likely fail. That tolerance decreases as investors make bets at later stages of growth. This is where the failure of Softbank’s strategy becomes apparent. Softbank was clearly the biggest offender of them all in the current late-stage venture market and frankly an unprecedented distortion as it barreled toward failed IPOs. While the Softbank train may have ended for late-stage and growth ventures, there is still plenty of institutional capital out there making bets, at least for now.
TrojanMan,
I find this article a bit underblown, based on the anecdotal stuff I see and hear right here in SF.
Does anyone have a feel for what the fallout would be if Softbank’s investment fund collapses completely?
Just saw this one: https://www.businessinsider.com/softbank-vision-fund-rajeev-misra-blackmail-former-president-wsj-2020-2
Typically this stuff comes out right around the time that things let loose.
Wolf, be careful that animal activists don’t come after you with the title of your post ==> “Unicorns & Non-Unicorns Hung Out to Dry”
lol
I wonder this whole thing is a money laundering/tax avoidance scam. Are investors really taking huge losses or they are just claiming those losses. Investing in dog walking startup is beyond belief
It would be nice if this were just a giant tax avoidance scheme. But it isn’t.
There used to be a convention in San Francisco, named TechCrunch Disrupt, perhaps it’s still around: the Bay Area folks surely know it.
There all sorts of crazy startup ideas were proposed to venture capitalists (VC) and other industry experts, weighed against each other with the finalists getting hundreds of thousand dollars in seed money.
Plenty of crazy stuff there throughout the years. My personal favorite is GameCrush, not so much because it was as idiotic as a hand-cranked monorail (another brilliant idea), but because as cynical, reprensible and morally bankrupt as the idea was it could have actually made money: GameCrush was built around the idea of male gamers paying a fee (50c/minute or something like that) to be able to play popular online games with a female player, whom GameCrush would have later compensated for her troubles.
Unfortunately GameCrush, despite being well funded by morally bankrupt folks like yours truly, ran into a host of practical issues, chief among which was recruiting an adequate number of female players and coming up with a satisfying compensation and legal protection scheme for them.
I think they liquidated back in 2014 or so but it was fun while it lasted.