Katerra’s collapse, Bill Ackman’s SPAC merger plus Uber CEO Dara Khosrowshahi | E1226

Episode Summary

Executive Summary: This episode of This Week in Startups features Uber CEO Dara Khosrowshahi discussing the company's post-pandemic recovery, driver supply challenges, the importance of flexibility for gig workers, and the growth of Uber Eats and Uber Freight. Host Jason Calacanis also analyzes the failure of SoftBank-backed Katerra as a cautionary tale about overfunding, introduces the concept of 'slingshot startups' that paused during the pandemic and are now accelerating, and discusses SPAC criticism, driver benefits, autonomous vehicles, and surge pricing.

Main Topics: Katerra Failure and Overfunding Risks (Priority: 5/5): Analysis of SoftBank-backed construction startup Katerra's shutdown, highlighting problems with overfunding, mismanagement, exaggerated revenue updates, and the negative impact on employees and investors. Slingshot Startups Concept (Priority: 4/5): Introduction of 'slingshot startups'—companies paused by the pandemic that cut costs and are now rebounding with increased velocity due to pent-up demand and favorable market shifts. Uber's Driver Supply and Wait Times (Priority: 5/5): Discussion of current driver shortages leading to longer wait times, strategies to attract drivers (higher earnings, flexibility), and the role of safety concerns amid the pandemic. Gig Worker Classification and Benefits (Priority: 5/5): Debate over independent contractor vs. employee classification, the push for a 'third way' (e.g., Prop 22 model) that combines flexibility with benefits like healthcare and minimum wage protections. Uber Eats Growth and Delivery Expansion (Priority: 4/5): How Uber Eats became a critical business during the pandemic, plans to expand into grocery, alcohol, and other local commerce, and the strategic acquisitions of Postmates, Drizzly, and Cornershop. Profitability Path and Business Focus (Priority: 4/5): Uber's journey toward profitability, with mobility expected to be profitable in H2 2021, Eats losses narrowing, and divestiture of self-driving and VTOL units to focus on core marketplace strengths. Autonomous Vehicles and Hybrid Model (Priority: 3/5): Uber's partnership with Aurora (26% stake) for autonomous driving, with a hybrid model where AVs serve suitable routes and human drivers handle others, rather than replacing all drivers soon.

Key Arguments: Overfunding can lead to mismanagement and unrealistic growth expectations, as seen with Katerra and WeWork; startups should focus on product-market fit and operational efficiency. Gig workers overwhelmingly value flexibility over full-time employment; around 10-15% of drivers want employee status, and regulations should preserve flexibility while adding safety nets. Surge pricing is essential to balance supply and demand, especially during peak times; removing it hurts reliability and driver earnings. Uber's marketplace model creates alignment between driver earnings and productivity, unlike traditional employment which pays average value. Delivery is not cheap; the majority of restaurant commissions go to couriers, and Uber's net take rate is ~10%—lower than many marketplace businesses. Self-driving cars will not fully replace human drivers in 3-5 years but will work in a hybrid model for limited routes; Uber's partnership with Aurora allows them to focus on networks, not hardware.

Data Points: Katerra funding raised: $2 billion - Katerra raised $2 billion but failed, highlighting overfunding risks. Katerra employee count: 8,500 down to 2,400 - Peak employees before multiple layoffs; ultimately shut down most U.S. operations. Katerra valuation drop: $4 billion to <$400 million - Valuation collapse after rescue financing and mismanagement. Uber driver median earnings per hour: $35-$40 - Current driver earnings due to high demand; 5-6x federal minimum wage. Uber Eats weekly run rate: $1 billion - Eats business scale as of the interview, making it the largest delivery player outside China. Uber Eats net take rate: ~10% historically; target ~15% - Net commission after courier payments; lower than typical marketplace take rates. Eats quarterly losses pre-COVID: $200 million - Losses before pandemic; now scale allows path to profitability. Uber mobility EBITDA margins pre-COVID: 30% - Mobility was profitable and covered all corporate overhead before Eats investment. Uber's stake in Aurora: 25-26% - Uber sold self-driving unit for equity stake; hybrid AV/human model. Drivers wanting full-time employment: 10-15% - Minority of drivers prefer employee status; flexibility is king for the majority.

Pivotal Quotes: "Demand is a fast twitch muscle, and supply is a slow twitch muscle." — Dara Khosrowshahi: Explaining the driver shortage and recovery dynamics post-pandemic. "We want to become the next hour company for you. Next hour, go get it, go anywhere, next hour, get anything." — Dara Khosrowshahi: Outlining Uber's vision to be the one-hour delivery Amazon for local commerce. "If you massage the truth and you have a big win, you're a hero, nobody's suing you. If you massage the truth and you lose your investors' money, now you're in court." — Jason Calacanis: Warning founders about the dangers of exaggerating financial results to investors.

Implications: For listeners, this episode underscores the importance of sustainable growth, honest reporting, and adaptability. The gig economy debate is unresolved but moving toward hybrid models like Prop 22. Uber's focus on profitability and delivery expansion signals a maturing platform. The slingshot startup concept offers a framework for post-pandemic resilience.