Wednesday, June 17, 2015

"Why Uber's $50 Billion Valuation Could Burst the Tech Bubble"

Today's California Labor Commission ruling, especially if repeated in the upcoming class action suit and maybe even by the IRS, is a whack to Uber but it's also a whack to the entire Silicon Valley ecosystem.

Mort Zuckerman's Boston Properties REIT was up today but as a major San Francisco landlord it's likely riskier now than it was yesterday.
And that's just one example.

From Inc., June 9, 2015:
Veteran venture capitalist Kevin Kinsella has a message for fast-growing startups: Take the money and run--far away from Uber.

Kinsella, founder of Avalon Ventures and an investor in tech and life sciences companies, has been sounding the alarm recently about the high valuations of tech companies. He's particularly concerned about the rise of so-called "unicorns," or private companies valued at more than $1 billion--though he says that as long as investors are showering some startups with cash, entrepreneurs should embrace unicorn status.
"If the bank window is open and they're giving away money on the cheap, I think entrepreneurs should be backing their trucks up," the La Jolla, California-based investor said in an interview last week. "From an entrepreneur's standpoint, it's a lovely day out there."
If Uber 'got a cold, I think the rest of the unicorns would get pneumonia,' venture capitalist Kevin Kinsella says.
That's particularly true for Uber, the on-demand car service now reportedly valued at an incredible $50 billion--more than the market capitalization of many huge, public incumbents, including FedEx and

Kinsella calls himself a fan of Uber's service ("I use it; all my friends use it; it's providing a terrific experience"), but he worries that any problems with the company or a similar-size market leader could burst the tech bubble.

"If there was a serious hiccup in Uber's valuation, since it's the lead unicorn--if it got a cold, I think the rest of the unicorns would get pneumonia," he says. Uber did not immediately respond to a request for comment. 
It's a familiar worry about the outsize influence that one dominant, successful company can have on its industry; if Uber were in banking, it might be deemed "too big to fail." And Kinsella doesn't see many obvious ways for the company to avoid eventually sparking a collapse in tech startup valuations, unless Uber can get similar buy-in from public investors in an IPO....MORE