Could Uber Fail?

When it comes to raising money, there are not many apps that can attract as much capital and interest as Uber can. A Techcrunch story suggests Uber are looking to raise another $1 billion funding round (yes, that is one billion dollars).

A mere 3 months ago, Uber raised a $1b round and they’re set to do it again. This would place their valuation between $60 billion and $70 billion respectively.

I guess it takes a lot of money to fight against those taxi lobbyists and governments looking to shut Uber down every chance they can get.

I am just an armchair speculator, but it appears as though Uber is burning through their cash at a high intensity (aka their burn rate). Instead of a slow burning candle, Uber appears to be an uncontrollable inferno in a large chemical warehouse.

Given Uber is now six years old and still appears to have made little ground on the legal front, you have to ask is Uber a sustainable company? They’re getting to the point where they will need to IPO soon. All startups reach this point eventually where the only way to get more funding is to go public.

But given all of the inherent risks associated with Uber’s business model, the shaky legal ground they stand on and rising opposition, they would be cannibalised in the markets if they were to ever go public. In-fact, it could end up destroying them or the very least, leaving a gaping wound that never heals.

I have actually used Uber a lot in my travels. When I was working in the US for a while, in Seattle I only ever got around in an Uber. When the controversy with the CEO happened I switched to Lyft and actually preferred it, then I came home and in Australia we only have Uber so ended up using them again.

The problem is, Uber is a great product. It serves a need and highlights just how lazy and incompetent the taxi industry has become. The taxi lobbyists claim that regulations and fees are the reason that a lot of problems with traditional taxis exists, but regulations and fees don’t excuse the poor presentation and behaviour of a lot of taxi drivers in this day and age.

Competition

When it comes to competition, Uber has a competitor is almost every market they have entered (excluding traditional taxis). While this isn’t entirely bad as Uber has the brand recognition, it also gives Uber a cushion of support when it comes to regulations as it is no longer one company against the system.

The ride sharing economy is hot property. I honestly wouldn’t enter it, but there are enough competitors to keep things interesting and to keep Uber relatively honest.

The Risks

Besides the fact that they are burning through money faster than the United States Government, there are other risks to Uber’s business model.

Recently here in Australia, Canberra (our capital city) became the first to introduce legislation for ride sharing services like Uber. This means that Uber or any other ride sharing service in Canberra will be legal. It is a small victory, but a victory nonetheless.

In other parts of the world Uber is not so lucky. It is a constant game of cat and mouse for Uber. They could be in one city today and banned from operating in that same city the next.

For instance recently while I was in Vancouver, Canada there was a notable absence of Uber. Due to regulations and pressure from taxi lobbyists no doubt, I had to catch a traditional taxi and while it was not that bad, it highlights Uber are not in some key cities.

Too big to fail?

Uber has sucked up so much investment capital and given a lot of equity out that it is probably past the point of no return. The investors who have collectively sunk billions into Uber will not let tat money go so easily.

Just like the banking system before the Global Financial Crisis and even after showed, there is such a thing as being too big to fail. I think Uber may have already reached that point, but it also does not make them immune to failing either.

Whether Uber can ride out the storm and live to see cities legislated ride sharing services remains to be seen. All I know is, if Uber did fail it could potentially send shockwaves through the investment community and trigger a tech bubble implosion.