Too big to fail?

I was reading about the bankruptcy filing by adtech firm Sizmek and was blown away by how big a business it was. Sizmek serves 1.5 trillion ad impressions yearly, with a user base of 20,000 advertisers and 3,600 agencies globally. Yet it couldn’t make a profit, prompting its lead private equity investor to cut off further funds and leading to a bankruptcy filing.

In the meantime, Uber and Lyft are gearing up for their IPOs, Uber apparently expecting a valuation of 120 billion US$ and Lyft a more modest 23 billion. Apparently NYSE has “Won” the Uber IPO while Lyft will go to Nasdaq.

Neither Uber nor Lyft has ever made a profit, at this point there is no projection that they will. Yet “winning” their IPO is considered a major prize.

Will regular folks be beguiled by the glamour of these companies and buy up their IPO at these valuations? If so, it would be a travesty. Companies like Sizmek served a real need, clearly got themselves a large share of the market and still didn’t get their business right in order to turn profitable. Eventually they ran out of rope and had to declare bankruptcy. These consumer facing app startups, on the other hand, never seem to run out of funds, investors are eternally willing to fuel an ever more unbelievable valuation and put money into them.

Which makes me think success and failure here has nothing to do with the basics of the business. If you manage to get enough large investors aligned with the need for a startup to exit successfully, then it will defy all business logic and get there somehow, kicking and screaming.

I’d love to be proven wrong but I suspect we’ll see Uber and Lyft continue their journey to an unrealistically overvalued IPO, their current investors will be laughing all the way to the bank and a few years from now, their soon to be shareholders will all be weeping copiously into their handkerchiefs – heck they’ll need big towels to soak up all the tears.

Which is ironic because Sizmek’s road to profit might not have been as impossible as the one ahead of all these ride-hail startups.