by Karl Denninger, Market Ticker:
Alleged “companies” are starting to fail that really are nothing more than cash furnaces existing on the back of “free” money poured in through various “venture” and “investment” funds — all with a singular focus: I gotta make something somewhere, and if I can’t come up with a clean way to sell a product or service I’ll try to flip the table over and monopolize by grabbing a book of business and arbitrage it.
This is, when you get down to it, pretty much what the entire “Short Term Rental” game is about; the arbitrage is in evading commercial building codes, commercial taxes (which are almost always assessed much higher than residential property) and other sorts of fees and expenses that should fall on the operator of said properties (e.g. commercial customers nearly-always pay demand charges for power and often also pay for “apparent power”, otherwise known as “power factor” — while residential customers pay for neither.)
TRUTH LIVES on at https://sgtreport.tv/
The latest boo-hoo is Convoy which apparently has folded; it was not, as you might think, an actual trucking company.
Rather it was a broker that tried to get in the middle of the person shipping and the company hauling. They’re not the only one in this space; Uber has a division doing it (well, at least for now) along with some others and there is risk in here for independents that haul for these folks because they are neither the buyer or the seller of the product being moved and if you don’t get paid you’re in a long line of creditors — and probably screwed.
When money is flying around everyone’s a genius. But when volumes start to come down the premium that you as a shipper would have to fork up to get priority goes away and thus the margin against which you can arbitrage…… disappears!
This is a company that allegedly raised $900 million and near as I can tell…… its gone!
Read that linked tweet and the alleged letter that’s attached and then let it roll around in your head a bit. If the company was cash-flow positive there wouldn’t be a problem with continuing operations, would there? Now all of a sudden “financing conditions” are trouble and may I highlight a piece out of that letter?
It “crushed our progress” at the same time “it crushed our logical strategic acquirer.”
SAY WHAT?
You didn’t build a business to make money with your alleged “tech-centric approach”; you built a company that made losses which you expected to sell to someone — a specific someone in fact, although they don’t identify who — even though you don’t make any money!
Why would someone else acquire you under those circumstances? That’s a good question; exactly what did they have that was worth ponying up at a price of more than $900 million, since I presume the intent was to sell at some profit over the burned-up cash, when said “tech-centric” approach did not in fact earn more than it cost to operate, including all the sunk funds!
Obviously someone thought that deal would go or they would have never done any of this in the first place, but on what was that predicated? Was the predicate that the $900 million was effectively “free” and would always be with near-zero cost of interest? It sure sounds like it when you read the entire missive.
