Weekly Reads - December 12, 2022
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Venture capital investments are expected to drop the most in more than two decades in 2022. This drop is likely to surpass the dot-com crash and financial crisis as rising interest rates, macroeconomic issues, and market volatility effect dealmaking. The value of global venture capital deals is already down 42% year-to-date compared to -34% during the 2008 financial crisis. In the U.S and China the value of new VC deals is down 45% and 50% respectively as investors pull back capital from the largest markets. 2022 has been a tough year for venture capital funds with the collapse of FTX and crypto prices burning VC managers like Sequoia Capital who opened a crypto fund earlier this year. Another issue for VC funds has been the lofty expectations of private companies who are looking for funding at 2021 valuation levels. The correction in public markets has led to VCs demanding steeper valuation discounts from private companies who are unwilling to accept these discounts. Until the private space accepts the reality that 2021 valuations are not coming back most VC funds will wait on the sideline until valuations correct.
Microsoft is rumored to be building a “super app” that could combine shopping, messaging, news, web search, and other services. This super app will be similar to Tencent’s WeChat which offers a bundle of different services under one central platform. The idea behind a super app is to combine different tech assets under one platform to make it easier and more convenient to use multiple services without having to constantly switch between applications. Microsoft’s goal behind their super app is to reduce Alphabet’s and Apple’s stranglehold on the mobile search space. The Microsoft super app will combine popular applications like Teams with less popular services such as Bing search so users will be incentivized to use the entire Microsoft product suite rather than just a few applications. The concept of a super app is not unique to Microsoft with Elon Musk showing interest in building his own super app and PayPal building their own payment super app. There is no doubt that Microsoft has the resources and tech assets to build its own super app, but questions remain on how the company will integrate all their individual assets into one easy to use platform.
Uber is suing the New York City Taxi & Limousine Commission (TLC) after the organization approved a fare hike for ride-hail apps and taxi drivers. This hike comes during a post-pandemic shortage in drivers, rising operational costs and higher inflation. The TLC voted to increase the per-minute rates of ride-hail drivers by 7.4% and per-mile rates by 23.9%.These increases are unprecedented with earlier increases in the 1.46% to 5.34%range. Uber is arguing that the TLC is using unsound economic principles that will force Uber to spend an additional $21 million to $23 million per month. This increase in driver fares will likely lead to a 10% increase in prices charged to riders which could depress demand for ride sharing. The TLC has argued that these price hikes are necessary as the ride-hailing market is short on drivers and they have the legal authority to implement these changes. It is unlikely Uber will win this lawsuit at the end, but if the company can stall these changes in the legal system for the next few years they can continue operating in New York without any changes.