Start-ups and "millennial lifestyle sponsorship"!

Derek Thompson (HT: Sandipan Deb) cuts to the chase with the start-up hype, describing it as a massive lifestyle subsidy to consumers,

Starting about a decade ago, a fleet of well-known start-ups promised to change the way we work, work out, eat, shop, cook, commute, and sleep. These lifestyle-adjustment companies were so influential that wannabe entrepreneurs saw them as a template, flooding Silicon Valley with “Uber for X” pitches. But as their promises soared, their profits didn’t. It’s easy to spend all day riding unicorns whose most magical property is their ability to combine high valuations with persistently negative earnings—something I’ve pointed out before. If you wake up on a Casper mattress, work out with a Peloton before breakfast, Uber to your desk at a WeWork, order DoorDash for lunch, take a Lyft home, and get dinner through Postmates, you’ve interacted with seven companies that will collectively lose nearly $14 billion this year. If you use Lime scooters to bop around the city, download Wag to walk your dog, and sign up for Blue Apron to make a meal, that’s three more brands that have never recorded a dime in earnings, or have seen their valuations fall by more than 50 percent...

To maximize customer growth they have strategically—or at least “strategically”—throttled their prices, in effect providing a massive consumer subsidy. You might call it the Millennial Lifestyle Sponsorship, in which consumer tech companies, along with their venture-capital backers, help fund the daily habits of their disproportionately young and urban user base. With each Uber ride, WeWork membership, and hand-delivered dinner, the typical consumer has been getting a sweetheart deal. For consumers—if not for many beleaguered contract workers—the MLS is a magnificent deal, a capital-to-labor transfer of wealth in pursuit of long-term profit; the sort of thing that might simultaneously please Bernie Sanders and the ghost of Milton Friedman.

When this round of start-up bubble bursts, as it will in the foreseeable future, several narratives (the world abounds with spectacular innovations waiting to be harnessed, boot-strapped start-ups are best placed to harness them, VCs are good at spotting these innovators, there is a VC funnel with this investment approach, and so on) and reputations (among the big name investors, and the world of impact investing itself) will take big hits.

This is hardly a game about building sustainable businesses, but about growing at whatever cost and thereby keeping the valuations going up - about cheshire cats than unicorns! Unfortunately, it is also giving a bad name to those investors who are genuinely good at spotting good businesses. 

Sample this, this, this and this to know more about the realities of the start-up world.