Jan 3, 2017 · 8 minutes

I’m going to be completely honest with you: This post came to me in a dream over the holidays.

Yep. I dream about startup strategy and venture capital. Even on the one week of the year we don’t publish. I’ve been doing this too long, and I’m a gigantic nerd.

Let’s review a few points we’ve discussed at length before and the rest of the world (including Uber) has capitulated:

  1. Uber’s core business model doesn’t seem to work…. At least, it doesn’t well enough to justify a $70 billion public company. As cities, increasingly push back on fingerprinting, Uber’s business with either have to change or its national footprint may shrink, as it admits not all markets have the dynamics of San Francisco and New York. Already it is complying with fingerprinting in markets like New York and Houston, but abandoned Austin. What happens if more cities start to apply pressure, gambling that Uber can’t pull out of every medium sized city and have the same valuation?
  2. Uber has failed at its promise for global domination, the one time justification for that valuation.
  3. While Uber has spent years arguing self-driving cars would solve its biggest problems (ie: drivers), even Travis Kalanick himself has noted the threat of self-driving cars and that Uber may not win in a battle where it’s outgunned by competitors when it comes to money and technology is “existential” for the company.  
  4. As much as cash and technology matters: Talent may be the thing that determines who wins this battle. There is precious little talent in the self driving car world. What is there is insanely expensive right now, even by Valley talent standards. Sebastian Thrun who worked on the original Google self driving car has estimated that talent at $10 million a head based on the acquisitions of Cruise and Otto. (The latter, a price set by Uber itself and exactly how it acquired its new head of the division.) Given the need for talent -- by some twenty players who span old line automakers, Uber, Google, Tesla, Apple, and possibly Amazon-- if you are in that category, it is a no brainer to quit and start or join a startup, just as Anthony Levandowski did to start Otto, and Google’s Chris Urmson did too. Odds are high you’ll get bought for a shit load of capital, if you amass enough talent. And plenty of VCs know that, so they’ll fund you.
  5. This trend is arguably worse for Uber than others. As the “startup” in the running, they should have the advantage when it comes to hiring. But 73% of people assume the stock is overvalued, just as there is mounting concern that most unicorn employees won’t get shit for their stock. Add to that, Uber is not considered a widely admired company or one people would like to work for across multiple industry surveys.
  6. A lot of Uber’s tactics that got it here aren’t working anymore. Witness last month’s battle with the DMV-- a government agency that invokes more eyerolls than fear. When Uber chose to ignore the DMV’s rules, no one was on Uber’s side and it rapidly packed its self driving cars off to another state. Tactics that worked when it was just going after cabs, have simply not flown now that Uber is a $70 billion company that spends more on lobbying in, say, Nevada than the entire gaming industry. Nor does it fly when unfeeling robots that run red lights are the potential downside, not just disgruntled corrupt cabbies.

All of these are reasons that I’ve argued Uber’s biggest challenge when it comes to self-driving cars may not be the deeper pockets and tech lead of Google or the sex appeal, tech lead, and brand of Tesla, but that it’s stuck in the middle. It has lost the scrappiness and potential upside of a startup, as an overvalued company with mounting pressure to go public. But what looked like deep pockets next to Lyft, are nothing compared to Google.

I’ve argued before that Uber might do what Didi did in China: Get over the feud and just buy out your biggest rival in order to monopolize the market. If Uber bought Lyft outright, it would steamroll its way through an IPO, have the freedom to charge far more for rides, and own any advantage in having all that existing data and ridesharing customer base.

But culturally that would be a bitter pill for both companies. Uber is too arrogant to think it needs Lyft; and Lyft’s employees who’ve long sucked up being a distant number two knowing they are the nicer, more ethical company would fly into open revolt. I mean, Lyft just launched an ad campaign about how evil Uber is. Just think of all the Medium posts.

Here’s another idea: Uber could raise a fund to back self driving car startups.

Let’s acknowledge upfront that there is one huge problem with this: Uber already has raised more money than anyone else in Valley history and has needed to to get where it is today. It is burning billions in capital a year. It has already stooped to never-before-seen lows to continue bringing in that capital, giving a board seat to the Saudi government, for instance. Uber has long since stopped listening to its own investors on this point, who are apoplectic about the strategy to keep raising dumber and dumber money instead of going public.

Even for Uber, there is a limit to its fundraising ability. Last year, two investment banks refused to offer its shares to their investors, expressing concern about the transparency around Uber’s business. This knowing the move would all but eliminate them from participating in Uber’s potential IPO.

And more telling: Uber scaled back its China efforts because it had to get its burn rate under control. Uber is slowly going the route of trying to pull things under control, not burn even more capital.

But, so far, all signs point to more capital being out there. Every time pundits think that Uber’s valuation and fundraising has surely hit a ceiling, there’s another round out there. And compared to what it is spending in India or what it was spending in China, or even what it spends to buy a single state legislature, a fund to back autonomous driving startups at their seed stage is a pittance.

Uber could easily package this as an “Uber Ventures” fund, while pulling together most of the cash from foreign regimes, existing partners in the automobile industry who have their own incentives, or even its new BFF Didi and its backers which are worth trillions in combined market cap.

And this is hardly without precedent. The rise of corporations backing startups has continued unabated in recent years despite endless warning bells that these corporations don’t share startups’ incentives. There’s the obvious point that Google Ventures was one of Uber’s backers before Google became its biggest competitor and Google’s David Drummond had to leave Uber’s board.

Plenty of startups have announced mini corporate venture funds funds even before they’ve had near the level of success Uber has. Didi itself has been one of the most aggressive startups investing in other startups, backing Lyft, Grab, and Ola before it buried the hatchet with Uber.

Uber itself had to invest hundreds of millions of dollars in Uber China in order to make that summer 2015 round “oversubscribed.”

There’s another problem too: If brass-knuckled Uber isn’t a company techies aspire to work at, is it one they’d trust raising money from? Especially when there’s so much capital likely on the table for a good self-driving car team? Sure, an investment from Uber could tee up a potential sale. But it also could undercut anyone else bidding on the asset.

Uber may well put itself in a position where the only companies it can fund are ones who couldn’t raise money elsewhere. But I’m betting Uber’s arrogance is great enough, it wouldn’t see that as much of a deterrent.

So those problems aside, what would Uber gain? PR for one. Another headline arguing its seriousness in self driving cars, doesn’t hurt, and let’s face it, Uber loves the vaporware photo opp. It would likely spin the news as a move against the giant companies, giving the future entrepreneurs a leg up and ensuring that a real ecosystem will be built here. Given increasing worries over the power of a handful of tech giants-- in particular Google, Apple and Amazon-- much of the tech press would lap all that up and Uber’s “bros” in the VC world would RT the news commending Uber on its commitment to the startup ecosystem, even against its own interest!

Uber is by its own actions and admissions a “storytelling” company now, having hired a marketer from Target as its number two executive, after he told Travis Kalanick the company needed to stand for-- not against-- something.

It would also gain something to offer if more employees depart. We support you 100%, all I ask is you let us invest! We believe in you! No matter what Uber promises startups it backs, they will be seen as part of the greater Uber self-driving car family and that helps Uber’s messaging should it go public, and potentially acquire back the companies if they need the talent or those companies hit on something.

Uber has wasted more money on worse ideas to combat threats that weren’t existential.