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UBER is letting employees cash in part of their FU Money.... in trickles.

UBER is letting employees cash in part of their FU Money.... in trickles.

Long employees of UBER are multi-millionaires, on paper. But with no sign of an IPO being imminent and a strict policy blocking most private share sales, they’re stuck in limbo land.

However, there’s a low key scheme available to UBER share holders who have worked there for at least four years, in that they can sell as much as 10 percent of their shares. A contact of mine at UBER told me (off the record) that the scheme has been designed as an incentive to encourage staff to not jump ship. The seller gets paid out over several months and must remain at UBER during that time, officially all UBER employees are not allowed to discuss the program externally. So my source asked to remain anonymous but told me that the scheme caps share sales at below $10 million per employee, with less than 200 of the 10,000 UBER employee shareholders currently qualify for the scheme. I was also told that this scheme is for GM/Country Manager level and above with those at that level having an average of $13m at current valuation, so in essence they will be getting around $1.3m in trickles, not exactly FU money in itself, but certainly a welcome injection of capital for the individual, who may invest it etc.

By working longterm in a startup, you are essentially embracing the scenario of short term pain for long term gain and often take pay cut, which you feel is mitigated by stock options or equity. However, UBER is quite unique in that because of the volume of capital they have raised an exit may still be years away, an IPO would require much work to improve the business pain points to create a positive prospectus that has the potential to achieve the market cap they need. I am not so sure that UBER will IPO before autonomous cars, but if they do, then it could still be years away, so you have an issue of employees who are very capable looking at other startups who have exits or even Google employees who have became seriously wealthy

http://jalopnik.com/google-paid-fuck-you-money-at-self-driving-car-projec-1792306694

With the exception of Snap (Who probably have no choice but to IPO) and a few others, tech companies are waiting much longer to IPO , and the huge funding available from private investors at favourable terms have made mergers a less attractive option. As a result, exits have been cut almost in half from their high in late 2015, according to the Bloomberg U.S. Startups Barometer, an index that tracks private markets.

The ride-hailing giant has raised more than $17 billion in cash and debt since its founding in 2009. It had more than $11 billion on its balance sheet as of June, the last time it disclosed the amount. But it’s spent aggressively since then, despite offloading its money pit in China to homegrown app Didi Chuxing.

Airbnb Inc. and Pinterest Inc. were founded around the same time as Uber, achieved valuations in excess of $10 billion and yet remain private. But the two companies have at times allowed their employees to sell shares to interested buyers and even facilitated some of those transactions. Uber, the world’s most valuable tech startup at $69 billion, has been more restrictive about who gets to buy its shares.

While Uber’s buyback approach can help it retain talent, it may also benefit the company’s bottom line. Using its own money, Uber purchases common stock for 25 percent to 35 percent less than the price of preferred shares from its most recent funding round, It can then turn around and sell shares at a premium in a subsequent round. Still, an employee who got their stock four years ago stands to make more than a 10-fold increase on the sale.

As some gold rushers watch their paper wealth soar, option holders face colossal tax bills on their stock, regardless of whether they can sell it. In late 2014, Uber began offering employees restricted stock units instead of options, which don't require paying taxes upfront, one of the people said. Employee demand to sell stock would be one factor that could ultimately motivate Uber to go public, but buybacks reduce some of the pressure.

Jinn Riders confront one of the co-founders over unpaid wages

Jinn Riders confront one of the co-founders over unpaid wages

In the video below Jinn riders confront one of the co-founders over unpaid wages....

I was sent Jinn's deck prior to their Series A raise, the numbers were shocking and that's why no top tier VC would touch them. They eventually closed $7.5m in April 2016 from a few credible VC's, between then Jinn have almost doubled their employee headcount and increased marketing spend, which no doubt means they have a much larger burn rate, so it would be interesting to know how much runway they have left.

jinn headcount

What struck me most when I saw Jinn's deck, is not the low volume but more importantly they had low rider utilisation/efficiency and based on this video, it appears not much has changed in that regard, with too many riders but not enough work for them, that combined with a scaling payment model disengaging drivers, will no doubt mean unit economics and ARPR are still a pain point and raising further capital may well be a tall order.

In my opinion the well-funded startups like Deliveroo, UberEATS or Amazon Restaurants or the minnows like Quiqup and Jinn biggest issue is that their models are not designed to appreciate that their riders literally are their bread and butter, without them, there is no liquidity and without that, it's a matter of time before they crash and burn. 

Deliveroo, for me stand out as being way ahead of the others named above, because they have more volume, but even they have a low efficiency and utilisation rate, meaning their riders moonlight to work for rival startups.

Granted, delivery and logistics are notorious for low margins and only only work at huge scale but that will only be achieved by working liquidity, otherwise scaling to the point it becomes profitable may well prove impossible.

You MUST create symbiotic partnerships w/ your riders and restaurants, it needs to make sense for them financially, and if you pay them how you want them to behave you will build trust, loyalty and avoid nasty confrontations outside your HQ, which obviously doesn't send great signals to potential investors.

Court of Appeal rules “self-employed” plumber has worker rights, this could have implications for UK "Gig Economy" startups

Court of Appeal rules “self-employed” plumber has worker rights, this could have implications for UK "Gig Economy" startups

A plumber who signed an agreement with his company suggesting that he was self-employed was in fact entitled to some worker rights, according to the Court of Appeal in Pimlico Plumbers Ltd and another v Smith.

The judgment has important implications for so-called “gig economy” employers that claim their workers undertake services on a self-employed basis and that they effectively run their own businesses.

Mr Smith worked as a plumber for Pimlico Plumbers from 2005 until 2011. The agreement between the company and Mr Smith described him as a “self-employed operative”.

The wording of the contract suggested that he was in business on his own account, providing a service to Pimlico Plumbers.

Mr Smith was required under the contract to wear Pimlico’s uniform (which displayed the company’s logo), use a van leased from Pimlico (with a GPS tracker and the company’s logo), and work a minimum number of weekly hours.

However, he could choose when he worked and which jobs he took, was required to provide his own tools and equipment, and handled his own tax and insurance.

There was no express term in the agreement allowing Mr Smith to send someone else to do the work. However, there was evidence that plumbers could swap jobs, described as “more akin to swapping a shift between workers” than substitution.

Pimlico Plumbers did not guarantee to provide Mr Smith with a minimum number of hours. Following the termination of this arrangement, Mr Smith brought claims for unfair dismissal and disability discrimination.

The employment tribunal found that he could not claim unfair dismissal because he was not an employee.

However, the tribunal decided that he could claim disability discrimination as a “worker”, whereby an individual undertakes to do or perform personally any work or services for another party to the contract.

The Employment Appeal Tribunal (EAT) agreed with the employment tribunal, and the Court of Appeal has now dismissed Pimlico Plumbers’ appeal.

In dismissing the appeal, the Court accepted that the original employment tribunal had been entitled to stand back and looked at the arrangement as a whole.

According to the Court, the employment tribunal had been right to regard Mr Smith as “an integral part of [Pimlico Plumbers’] operations and subordinate to [Pimlico Plumbers]”.

The employment tribunal was entitled to regard Pimlico Plumbers as more than just a “client or customer of Mr Smith’s business”.

Unlike recent high-profile judgments involving Uber drivers and CitySprint couriers, this ruling is binding on other courts and tribunals.

This means that the Court of Appeal decision in Pimlico Plumbers Ltd and another v Smith is likely to be a key authority in any forthcoming cases on employment status in the gig economy.

After the ruling, Charlie Mullins, founder and chief of Pimlico Plumbers, said the company had changed contracts with those who worked on a self-employed basis. “Like our plumbing, now our contracts are watertight,” he said.

Glenn Hayes, an employment partner at Irwin Mitchell, said: “We are seeing increasing numbers of individuals challenging their status and claiming to be workers or employees.

“CitySprint couriers and Uber drivers recently persuaded separate tribunals that they were workers and although Uber is now appealing this, tribunals are clearly taking a pragmatic and bold approach to determining status cases, despite contractual arrangements which are designed to give the appearance that individuals are genuinely self-employed.

“The outcome of this case is very significant and could make it more difficult for Uber and others to persuade the courts that its drivers are genuinely self-employed.”

Yvonne Gallagher, employment partner at law firm Harbottle & Lewis, said it was important to note that this case did not find that the plumber was an employee of Pimlico Plumbers.

“Those categorized as workers have a right to minimum wage and to paid annual leave, along with some other procedural rights, such as a right to be accompanied at any form of disciplinary meeting,” she explained.

“But they do not enjoy the full range of protections given to employees and perhaps as importantly, are not subject to the PAYE system applicable to employees.”

However the judgment included a warning to commentators: “Although employment lawyers will inevitably be interested in this case – the question of when a relationship is genuinely casual being a very live one at present – they should be careful about trying to draw any very general conclusions from it.”

General secretary of the TUC Frances O’Grady said: “This case has exposed once again the growing problem of sham self-employment.

“Unscrupulous bosses falsely claim their workers are self-employed to get out of paying the minimum wage and providing basics like paid holidays and rest breaks.”

Other gig economy cases

Uber is appealing against the high-profile employment tribunal decision that the drivers who brought the claim are workers rather than self-employed.

This means that they are entitled to receive some basic employment rights, such as the national minimum wage and paid annual leave.

A similar finding when the Uber case goes to the EAT would be bad news for the company, as it could lead to it having to radically overhaul its contractual arrangements with its drivers.

In another recent case about employment status in the gig economy, the employment tribunal found that a CitySprint courier is a worker rather than self-employed.

In both cases, the employment tribunals were highly critical of the contracts that the workers were asked to sign.

The employment tribunals saw the contracts as drafted in a deliberately complex manner to mask the true nature of the working arrangements.

There are also a number of other outstanding legal challenges with courier companies including Hermes, Addison Lee, Excel and eCourier.

The Government is currently conducting a review into workers’ rights in the gig economy, led by Matthew Taylor, chief executive of the Royal Society for the Arts.

Why VCs Are Giving Up on On-Demand Delivery

Why VCs Are Giving Up on On-Demand Delivery

Michael Moritz—chairman of Sequoia Capital and one of the most successful venture capitalists in history—says a simple vision led him to invest hundreds of millions of dollars in on-demand delivery startups.

“The movement of goods and services and people, by easier, more convenient means,” he said in an interview. “That’s a huge trend, enabled by smartphones.”

Kleiner Perkins Caufield & Byers— and other well-respected VC's have collectively invested >$9 billion into 125 on-demand delivery companies over the past decade, including $2.5 billion last year, according to a Reuters analysis of publicly available data.

But that flood of money has slowed to a relative droplet in the last half of last year, and with many VCs appearing to have lost faith in a sector that once seemed like the obvious extension of the success of ground transportation beasts such as UBER, it is also seeming likely there is a "lack of appetite" (excuse the pun) from current investors to invest in follow-on rounds to protect their position and avoid dilution, which obviously doesn't exactly make the cap tables for new investors very attractive.

The majority of last year’s investment—about $1.9 billion—came in the first half of the year. Only $50 million had been invested up until the fourth quarter, the Reuters analysis found. Several prominent Silicon Valley venture capitalists said in interviews that they now believe many delivery startups could fail, leaving investors with big losses.

“We looked at the entire industry and passed,” said Ben Narasin, of Canvas Ventures. “There is more likely to be a big, private equity-style roll up than a venture-style outcome.”

Reuters analyzed investment in on-demand delivery startups using publicly available data from the companies, their backers and third-party websites such as Crunchbase and MatterMark. Inevitably the data isn't scientific and doesn't include some investments made by private firms and individuals who do not always disclose investments.

Delivery startups continue to fight it out, with fierce competition, tiny margins and a host of operating challenges that have defied easy solutions or economies of scale, venture capitalists told Reuters. Widespread discounting and artificially low consumer prices have made on-demand delivery “a race to the bottom,” said Kleiner Perkins partner Brook Porter in an interview. His firm has previously backed U.S. based startups DoorDash and Instacart and China-based Meican.

2016 saw high-profile failures, including U.S. meal delivery firm SpoonRocket, which shut down in March, and PepperTap, an Indian grocery delivery service backed by Sequoia that shut down in April. Elsewhere, DoorDash, another of Moritz’s investments, was able to close its latest VC Investment round in March only by cutting the value of its share price by 16%, according to data from CB Insights.

The entry of uberEATS and Amazon into food delivery promised to make life more difficult for smaller startups but is still yet to happen.

Sequoia has backed at least 14 local delivery firms, among them four in the United States, five in China and four in India. Sequoia did not respond to Reuters requests for a response to rising VC skepticism of delivery firms.

Venky Ganesan, of Menlo Ventures, said the sector has no clear way to cut costs or boost revenue.

“You can’t raise prices on consumers, and you can’t cut labor costs,” he said. “The core unit economics didn’t make sense.”

Dalton Caldwell, a partner at Y Combinator—the prestigious tech incubator that birthed a number of delivery startups—was also skeptical, though he thought companies with efficient operational capability could succeed.

Many delivery startups, he said, “make the assumption that once you get bigger, things will get easier, and that’s wrong. There is driver churn, operations people that cost money, more support costs."

DoorDash, founded in 2013 by four students in a Stanford University dorm room, has raised nearly $200 million from top-tier VC firms.

Focusing on food and alcohol delivery, DoorDash has agreements with local restaurants, including franchised outlets, in dozens of cities in the U.S. and Canada. But Doordash still has various operational challenges.

“There is an opportunity to redefine local commerce in cities,” says DoorDash co-founder Stanley Tang. “But we have to figure out, what are the operational challenges, and then how we can scale it up.”

I was part of the team that built JUST EAT from startup in the UK and I have since advised various companies in the global #FoodTech space, as well as top tier Venture Capital and Private Equity firms (who have already invested and others who are looking at potentially investing) so I know the space well.

My opinion is that the on-demand food delivery players are nowhere near the scale of JUST EAT, especially here in the UK, where combined they don't even get 10% of the monthly orders JUST EAT receive and whilst the common perception is that on-demand delivery has an AOV which is far greater than JE, the fact is that in many geographic areas (hyperlocal and in some cases across entire cities and countries) - this is far from the case, this combined with a chronic lack of scale, results in terrible unit economics and unsustainable burn rates.

uberEATS is treated as a startup within UBER with very little investment poured in from them thus far, inevitably resulting in limited success. I know they are specifically struggling around acquiring customers and riders, except when they give unsustainable referral credit. This expensive acquisition model works well in ground transportation for UBER (because they have raised substantially with that in mind) but it will not work in food - for anyone, as margins are notoriously low and even a viable financial model requires huge scale and efficiency.

 

Deliveroo had VC's clambering to invest when they proved their model in two London boroughs, Kensington and Chelsea and Westminster, the two boroughs have tons of restaurants and residents with high disposable incomes, so naturally the AOV and Unit Economics were impressive enough to attract top tier investors. There are lots of things I admire and respect about Deliveroo, such as a really talented team, rapid expansion, key partnerships, and great technology, sadly for them, their huge potential hasn't been matched commercially and their initial model hasn't worked in new markets. Up until their latest raise, "the word on the street" was they were burning £8m per month and could only close £100m of their £200m raise as their largest investor from the previous rounds, declined to participate and avoid the inevitable dilution. There were also rumors that Deliveroo had hired an investment bank to explore the potential of an M&A, I have no idea how much truth was in that, but in the end, they took investment from Private Equity firm Bridgepoint - As many in the investment world will know PE money differs greatly from Venture Capital and it is a risky tactic for a company with operational and scalability question marks. It is also risky as PE money is almost always linked to controlling voting rights and liquidity preferences.

Amazon entered the market last year and have also struggled to scale for many of the same reasons as uberEATS and Deliveroo.

The fundamental issues shared by all are user, restaurant and rider acquisition and the liquidity between these.

Riders simply aren't getting enough work from any of them and have very little loyalty, with many viewing this as a perfect storm to manipulate for financial gain e.g taking an hourly rate from uberEATS whilst moonlighting and being paid per drop by Deliveroo. 

This has resulted in poor rider efficiency/utilization and often riders sitting around doing nothing is a common sight, even at peak times such as Friday and Saturday nights.

In my JUST EAT and GETT days whenever I was speaking with partners, I regularly used the phrase "If the wheels aren't turning, we aren't earning" which I think is also very relevant in this case, except when the wheels of the on-demand food startups riders aren't turning, the startups runway is burning.

All three on demand players are accounting for a tiny amount of the UK food delivery market and the "word on the street" in the investment world, is that these are very much distressed assets, so I wouldn't be surprised that within the next 18 months, we see M&A's and in some cases even shutting down happening.

I am sure in 2015 there were one or two VC's considering which Porsche they would buy with their carry from their deals in the space, but if the climate of uncertainty is the case, their funds potentially stand to make losses, so the Porsche may have to wait,

That is not to say I do not think there aren't opportunities within the on-demand food space and I would honestly like to see Deliveroo in particular, do well as its good for the UK tech startup ecosystem. So I actually would smile and congratulate them if they prove me wrong.

I also know of a startup in stealth, who I believe could have potential to tackle the white space and large opportunity that the likes of Deliveroo, uberEATS and Amazon have so far been unable to or it seems are unlikely to ever capitalize on due, to the way they are structured.

I will keep the stealth startups identity under my hat, as they are still very early but I am told they are growing 25% week on week and are revenue generating, so It will be observing their growth with interest.