Office Hours: Uber’s Super App Prospects, Private Wealth Managers, and When to Raise Capital

Scott answers a question about whether Uber is an appetizing acquisition target at its current valuation. He then offers advice on when to raise seed funding for your startup, and shares his wealth management journey from self-investing to hiring a professional. Music: https://www.davidcuttermusic.com / @dcuttermusic Learn more about your ad choices. Visit podcastchoices.com/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:01Scott Galloway?

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• 1:26Scott Galloway?

  Welcome to the PropG Pod's Office Hours. This is the part of the show where we answer your questions about business, big tech, entrepreneurship, and whatever else is on your mind. If you'd like to submit a question, please visit officehours.profgmedia.com. Again, that's officehours.profgmedia.com. First question.

• 1:44Speaker 03

  Hey Scott, Michael here, coming to you from North Beach in San Francisco. Uber is trading out what I think is a discount, 16% below its IPO at time of recording. As America's closest thing to a super app where we can get alcohol, groceries, food, and transportation, is it a prime acquisition target, say, for Block to marry its crypto aspirations with the movement of goods and people? Or does it continue to flounder in the markets till it finds its footing? Thanks and love the show.

• 2:11Scott Galloway?

  Thanks for the question, Michael. So I want to acknowledge upfront, first off, I don't hear these questions before they're asked, so we're raw and authentic, but I don't know a ton about... The market capitalization of Uber. As we sit here today, it's trading at about 34 bucks a share, which is almost at its 52-week low, and it has a market cap of about 67 billion. Uber went public three years ago at 45 bucks a share with 120 billion dollar valuation, so it's technically a broken IPO. Uber remains unprofitable, but it reported its first-ever adjusted profit for the fourth quarter of 2021, when revenue grew 83% year-over-year to nearly 6 billion. The company had 118 million active users on its platform in the quarter, up 27% from

• 2:56Scott Galloway?

  the year prior, and its greatest number yet. It's made more revenue that quarter by delivering food, 2.4 billion, than it did delivering people. That's interesting, isn't it? It's now kind of a food-delivery company more than moving people around, or a ride-hailing company. So Block's market cap is 54 billion. It's also trading close to its low, around 94 bucks per share currently. It's high, get this, 290 dollars. So that stocks off about 63%. The thing that comes to mind here is what I think is going to be kind of the business term of 2022 that we haven't heard a lot about, and that is super app. And that is, in China and India, we have these companies in transportation, in social,

• 3:38Scott Galloway?

  and in payments that develop a unified operating system such that they can command more of your attention per day. And those companies, whether it's Geomart, or Baba, or Tencent, typically become some of the most valuable companies in that ecosystem. We don't have a super app in the US, because Apple and Google are in the business of ensuring that no one develops super app status. Apple does it by putting out their elbows and charging a 30% fee to any app in their app store. Google does it by sequestering the entire online world and forcing them to pay a toll in the form of ads. So they have a vested interest in not letting any one player start to steal attention or time from them.

• 4:20Scott Galloway?

  But the first company that kind of shows up with all three of those assets can say we're Tencent or we're the first super app in the United States. And it's not a stretch to think that the company that develops super app status in the United States would trade at a Google or Apple like multiple or valuation, I should say, and start seeing an incredible appreciation in its stock market price. So I think Uber, if you will, is kind of the most likely component of the transportation part of a super app status. So I can see a payments company saying, all right, if we connect with Uber, all of a sudden we raise our hand and say, hi, start calling us super app.

• 5:04Scott Galloway?

  So I think that Uber is potentially an acquisition target or a merger candidate. It's sort of become a little bit of a transportation operating system. It has a ton of interesting data. I mean, I look at it and some of the data, I think, okay, it's got a market cap of $67 billion. It's got approximately 118 million people. So what is that? It's about $500 for active user. That feels like, okay, would I pay $500 for active user to buy a company? Yeah, you think that actually, when you position it that way, you think, okay, maybe it is a decent value. If you're, would you pay $500 for every active Uber user?

• 5:48Scott Galloway?

  And you think, okay, the attention, the credibility that company has with those users, that's probably worth 500 bucks, your ability to monetize them. So, yeah, I don't even know how to begin to value this company because it's never made money. And I have a bias against it because they use software to basically, in my view, circumvent minimum wage laws. Having said that, when I talk to Uber drivers, they like it. So who am I to judge? Am I definition of a limousine liberal, an Uber liberal, an ooh liberal, Uber? And all of that, they've just taken that fucking word from me. I love saying, I'm the Uber dog, or I'm the Uber gangster, I'm the Uber loser, whatever. Now I can't, now I just think of this like ride hailing firm, so I'm kind of upset about that.

• 6:30Scott Galloway?

  I think that the company probably is, I don't want to call it undervalued, but at some point, it probably is an acquisition target. You've got 120 million strong user base. That's beginning to feel kind of big tech-ish. In sum, I don't think you value this company on cash flows or earnings. I think you value it based on its user base. And would that user base be more valuable to someone else? Or would Uber be one big leg of the stool of an emerging super app? Thanks for the question. Question number two.

• 6:58Speaker 04

  Hi, Scott. Kevin here from Berlin, Germany. Massive fan of the pod. Here goes my question. I'm a solo founder of a bootstrap startup. We build tools for UX designers and are currently five people with a mid-six-figure annual revenue. We're currently considering to raise money. When is it, in your opinion, a good and when a bad idea to raise? We've been profitable from very early on, but I feel like raising money might help me to make bigger decisions more easily, especially bigger financial decisions are still scary to me since for some reason I feel quite attached to the money that we've earned so far. My theory is that getting investors on board will push me into making those bigger steps and also treat money more like a means to an end.

• 7:43Speaker 04

  I'm curious to hear your thoughts on when getting investment is the right move for a startup.

• 7:47Scott Galloway?

  This is a tough one. So first off, I think you raise money when you don't need to, quite frankly, because when you need to, it's usually harder. It is a good time to raise money. We're going through, in the US, I think we're about to go through, a pretty significant drawdown and down rounds and valuations are going to come down in the private market because you have companies from Roku to Rent the Runway to Shopify off 50, 60, 80%. Virgin Galactic, Clover. I mean, these companies are all off Robinhood, 70, 80, some even 90%. And the public markets are the tail that wags the private market dog. And the thing is, they don't have to mark their book every day.

• 8:30Scott Galloway?

  So founders and their VCs are still in this consensual hallucination that, oh, everything's fine in the private markets. We're going to be fine. No, you're not. And recently Tiger and Co2 just announced that they're going to cut back their growth investing in private companies because why would you do that? Would you combine better deals in the public markets? This means you're going to see a lot of down rounds. A lot of companies that are churning through cash were hoping they could get to a point where they would get taken out at 20 or 40 times revenues by a SPAC or the public market, and that market is going away. We'll say, okay, this no longer makes sense. You need to cut costs and we need to adjust our expectations. There's going to be a lot of pain. I went through down rounds in the 90s and the aughts. This generation of entrepreneurs just hasn't experienced down rounds.

• 9:14Scott Galloway?

  I'm kind of curious to see how they respond. It involves dilution. It involves new terms. It involves uncomfortable conversations. It involves a leaking of leverage from the founder back to the investors, which entrepreneurs have not experienced. But it's absolutely going to happen. Now, having said that, having said that, you're sort of well positioned. One, you're in Europe, and I think a lot of capital that was focused on the American tech trade is looking elsewhere in Latin American Europe because valuations are better. The same types of crazy valuations at your level in Europe hasn't happened in Europe to the same extent it happened in the US. So I think a lot of capital is looking abroad for companies like yours.

• 9:56Scott Galloway?

  Also, a lot of VCs, and even Tiger and Co2 said this, that they were going to look further downstream at startups where they could own a large portion of the company for a smaller amount of revenue. So I think it's kind of up to you, but I think it's an honest conversation around, one, do we like the idea of being able to go it alone? Taking money is, here's the bad news about investors, is they want their money back. And here's even the worst news, they want more than their money back. They want the opportunity to make 5, 10, 20x times their money. So when I raised money for Red Envelope at a valuation of 120 million in 1998, I thought, yay, for me. And what I didn't realize is, well, that means they think it's going to be worth 500 million to a billion. And it's like, well, are we really going to get there? And we didn't. We didn't.

• 10:40Scott Galloway?

  Anyways, it's not, I think not having to raise money is a real luxury. I didn't ever think I would raise venture capital again, and I have several times over the last 10 years. And it kind of comes to my last lesson. I've only raised money from one firm, General Catalyst. I know the people there. I like them. I trust them. It's the kind of relationship where they send me a term sheet and I just sign it. They've always been not just fair, but generous with me, and they've made money from me. So it's just a good partnership. The majority of VCs I have dealt with, it has not been a good experience. It has been a tense...

• 11:16Scott Galloway?

  Even rapacious relationship or an ugly relationship. And some of that has been my fault. Some of that has been the environment and some of that has been that I think most VCs are the smartest people you ever meet who don't know a fucking thing about your business. Generally speaking, I find, and this is very reductive, there are very few cohorts that are less pleasant, more self-absorbed, more convinced they're changing the world than venture capitalists. And I'm even going to be more regionally biased, specifically Bay Area venture capitalists. Anyways, I don't know if the same is true in Europe, but you're in the right place in Berlin. I think there's a lot of capital pouring in. The ability to raise money doesn't mean you necessarily should.

• 12:00Scott Galloway?

  But just an honest conversation with your partners on what kind of business is this? What are really the capital needs and what it is? What's important to you? Anyways, thanks for the question and best of luck. Farson Nugin, good to be you. Good to be you. Thanks for the question. We have one quick break before our final question. Stay with us.

• 12:27Scott Galloway?

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• 13:12Scott Galloway?

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• 13:30Scott Galloway?

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• 14:15Scott Galloway?

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• 14:38Scott Galloway?

  Welcome back. Question number three.

• 14:41Speaker 06

  Hey Scott, this is Jay from Minneapolis. I recently sold my company and now need to manage the proceeds from that, which I have no experience in. What are your thoughts on private wealth managers versus self-investing through research and diversification? Thank you.

• 14:54Scott Galloway?

  Well, that's a good problem, Jay from Minneapolis. So I'm going to say do as I say and not as I do here. My life changed dramatically in terms of my approach to money when my first kid came rolling out of his mother. And it just all of a sudden hit me very strongly that this was no longer just about me, and that I needed to start getting responsible, and that if I had a big hit, great, but I was going to make sure that regardless I was financially secure. I've always made a good living, so I started saving more. And wealth is a function not of what you earn, but what you spend, or specifically how much you can save and your discipline around investing. And I also had the winds in my back, started really saving in the aughts. Tech boom comes along and financial security followed. It also helped that I was a white heterosexual male born in the 60s because I had access

• 15:38Scott Galloway?

  to free education and... Access to processing power and the tech boom and the great liberties we've joined America. So I don't want to, I want to ensure I recognize my privilege. But anyways, if you have money and you want to decide, all right, do I manage it or do I invest it? What I did was that I managed, I self managed. I, at one point, I was a Series Seven licensed representative. I worked at Morgan Stanley. I feel as if I understand the markets. I get teased a lot on Twitter for my bad calls, which is mostly been from a bunch of flying monkeys. I have been very fortunate with my investments. I've compounded at a good rate, which is dangerous because you start thinking you're good at it and you start taking stupid risks. But also, a lot

• 16:22Scott Galloway?

  of it is I've had access to IPOs that other people don't have access to because sometimes I advise the CEOs. But anyways, I like, I'm fascinated by the markets. I enjoy managing my own money. Having said that, once I hit a certain point, I've been, this is the third time I've been quote unquote economically secure, which is a more PG 13 way of saying rich. The first two times I was rich, I wasn't. I thought I was, but I wasn't. I wasn't diversified. I had a lot of assets in a company that wasn't public, that was supposed to be worth a lot of money, and then boom overnight, it wasn't. I don't want to go back. I do not want to go back at this age. I'm running out of time. So I diversify and I use financial wealth management. I use Goldman Sachs Family Office to

• 17:07Scott Galloway?

  now help me, save me for myself. And that is diversify, manage my taxes, manage my retirement, my trusts, all that stuff. These are really good problems. But I talk to them regularly and they kind of save me for myself. And that is I try to never get in over my skis around diversification. I think once you get above 40, you don't want to have, unless it's your own company, you don't want to have more than 20%. Of your wealth in any one thing. That was always my mistake. I had no diversification. I always went really big into stuff, which is great, which works really well until it doesn't. By the way, the wealthiest people in the world did the same thing. They had all of their assets in one thing, but that one thing worked out really well. You don't

• 17:52Scott Galloway?

  know if that's going to happen. So I would say unless you're fascinated with the markets and you're willing to diversify yourself, by all means, work with a financial advisor. They're good at what they do. I don't think they bring any real insight. They're not going to be able to get you into IPOs you aren't able to get into. All the IPOs I've gotten into have been a function of my relationship with the CEO. Goldman has no access to IPOs. I mean, they just don't, or they give it to much bigger clients than me. But they're really smart people. They can help you manage your kind of total financial profile. I think it's really good to get outside advice, even if you decide to ignore it. Just logistically, you want to have your act together in terms of taxes and being able to start thinking

• 18:35Scott Galloway?

  about how you plan for retirement and set aside some money for your kids. And it forces you to think through your cash flow and your needs. So I'm a fan. I think it's very easy to be cynical about financial planners, but I think it's a good idea. So I would interview several, see who you kind of vibe with, and maybe you do a little bit of both. Maybe you turn 50% over to a wealth manager and you manage 50% on your own and have some fun. Jay, thank you for the questions and congratulations on what sounds like a liquidity event. You're obviously very fortunate and I hope you take pause to recognize how fortunate you are. Good problems, good problems. That's all for this episode. Again, if you'd like to submit a question, please submit a voice recording by visiting officehours.prophete

• 19:19Scott Galloway?

  media.com. Our producers are Caroline Chagrin and Drew Burrows. Claire Miller is our assistant producer. If you like what you heard, please follow, download, and subscribe. Thank you for listening to the Prop G Pod from the Vox Media Podcast Network. We will catch you on Thursday.

• 19:40Speaker 07

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