Lessons from the Rideshare Giants

Amit Raizada

September 23, 2020

The state of California and rideshare giants Lyft and Uber engaged in a remarkable display of political brinksmanship last month. As the state moved reclassify rideshare operators from independent contractors to employees, the two firms threatened to shut down their operations in the nation’s most populous state. Just as the firms were about to sever their services, the courts intervened, allowing Lyft and Uber to resume operations as usual while litigation took place.

Politics aside, this saga offers an incisive case study into the ways that firms like these—which were founded initially as startups—impact our daily lives.

As an entrepreneur, venture capitalist, and CEO of Spectrum Business Ventures, I always find it fascinating how innovative startups like Lyft and Uber have developed innovative, novel products that are now societal staples.

Thinking back just a decade ago, the rideshare concept was alien and unthinkable. The idea of catching a ride in a private citizen’s vehicle for a quick trip to the grocery store or a night out at a local restaurant was, for many Americans, frightening at first.

But both firms were able to overcome this initial concern by addressing an acute need in many communities—access to safe, clean, reliable transportation.

Americans needed new ways to get around, and Taxis simply weren’t cutting it. Often expensive and inaccessible, Americans needed access to quicker transportation at a lower price point. As they began to look for options, Uber and Lyft offered solutions.

In many ways, both firms embodied the entrepreneurial mindset that I think is integral to Spectrum Business Venture’s unique approach to investing.

At Spectrum Business Ventures, we have always sought to closely observe emerging market trends and the preferences of young consumers. While ventures of these sorts may not be immediately profitable, we are always willing to accept a loss in the short-term to secure a foothold in the most prolific firms, industries, and products of the long term. Investors in Uber and Lyft did just this—and it’s one of the reasons for which I admire them.  

I believe the success of rideshare firms can be boiled down to a few factors. The first was a present need—Americans needed transportation and were hungry for innovations in this age-old sector. Second, was innovation from millenials. Uber and Lyft were able to harness the latest technology to marry transportation with the increasingly prevalent smartphone. By using their iPhones to hail rides, consumers now had a new way to secure taxi-type services for the first time since the advent of the automobile. Third, were innovative venture capitalists, whose foresight identified a problem and developed a solution.  

Ridesharing, of course, quickly caught on with younger populations who were more tech-savvy and who were already accustomed to using their phones and the internet to streamline everyday processes. Shrewd investors closely followed emerging market trends, understood the increasing prevalence of personal technology, and realized that the rideshare model—while maybe unorthodox in the moment—could be the way of the future. It was this combination that ushered in a new wave of creative destruction, giving us, the consumers, access to a great new product.

Lessons Learned from a Highly Speculative Stock Market

Amit Raizada

July 24, 2020

Lessons Learned from a Highly Speculative Stock Market

The recent price movements in the stock market emphasize the growing relevance of disruptive market investments for savvy investors. These investments have become essential for navigating the global economy's dramatic shifts, offering a unique lens to uncover long-term opportunities through innovation.

Understanding the Shift Toward Disruptive Market Investments

The huge swings up or down can be enticing—even intoxicating—for new investors. Promises of fast money on exaggerated market moves have led to a surge of reckless investing. However, this type of speculative trading often lacks the long-term potential found in disruptive market investments. The difference lies in identifying trends that cater to changing consumer needs, enabling investors to bank on sustainable innovations.

The Age of Robinhood and Immediate Gratification

The popular investing app Robinhood has democratized market access, encouraging a wave of new traders. While this has led to some impressive short-term gains, it has also sparked troubling trends. The allure of options trading and penny stocks often eclipses the long-term value of disruptive market investments. By focusing on companies that innovate and fill market gaps, investors can avoid the pitfalls of speculation and instead build sustainable portfolios.

Case Studies of Disruption: Hertz and Nikola

At the end of May, Hertz declared bankruptcy, but its stock price inexplicably soared by 900 percent due to speculative trading. Similarly, Nikola’s rise and abrupt fall highlight the dangers of jumping onto short-term trends without understanding the fundamentals of disruptive innovation. Investors looking to capitalize on the transformative power of disruptive market investments should focus on ventures that address real-world needs and offer groundbreaking solutions.

The Future of Investing: Focus on Disruption

Investment is more than just a numbers game. By emphasizing disruptive market investments, aspiring investors can tap into ventures that revolutionize industries and provide long-term value. Whether it’s filling voids in the market created by younger generations or delivering cutting-edge technologies, the future belongs to those who can identify and support innovation. Disruption doesn’t just transform industries—it creates opportunities for life-changing returns while positively impacting the world. You can read more about Investment Philosophy here 

Millennials and Markets, Part III: Investing in the Source

Amit Raizada

July 6, 2020

In the second article in this series, we looked at how millennials prefer to search for investment opportunities that match their own lived experiences. Likely a consequence of the adverse economic conditions in which they were raised, younger generations have looked to cryptocurrencies as a solution to alleviate some of their economic fears, like inflation and bank failures.

In an economy where cradle-to-grave employment is all but gone and individuals have become accustomed to switching jobs every few years, brand loyalty has been deeply eroded among younger generations. Millennials and Gen Zers tend to support “the little guy,” over the blue-chip, name brands. Eschewing the rigidity inherent in many of these brands, they prefer to work, and invest, on their own time – supporting gig economy firms like Uber and Postmates.

In the final installment of this series, I wanted to face the cornerstone of the millennial capital paradigm – using investment to create social change – head-on. Many young investors have sought out ventures that directly address the societal inequities they hope to redress.

Directly Investing in Social Change

Millennials have long been known to directly invest in social change. Perhaps the most striking example of this was found during the movement for justice after George Floyd’s death. We witnessed the powerful impact of crowdfunding and social organization, allowing young people to leverage their money for social causes they cared about. ActBlue, the Democratic National Committee’s main fundraising wing, saw one of its largest fundraising hauls in the days after the initial protests. Young investors are becoming significant benefactors of nonprofits and advocacy groups, choosing to place their money not into corporations, but into institutions that will drive the change they wish to see in the world.

As a vocal proponent of tolerance, I am incredibly optimistic about the trends in giving that we are witnessing among the younger generations. We are seeing that they are not afraid to give directly to the social causes they care about; And, as technology continues to make the giving process even simpler, we will see millennial support for charitable causes grow exponentially.

Millennials are truly revolutionizing the investment landscape, leading with their values and eschewing all companies, commodities, and causes that don’t align with those values. As I have always said, the secret to investing is really no secret at all: Always keep your finger on the pulse of younger generations’ tendencies and the trends that emerge from them. By keeping this in mind as you make your next investment decision, the upside will be forever in your favor.

Many millennials and young people fell they were dealt a poor hand. To be honest, I can’t say I blame them. But they were also born into a period when consumer technology has taken off, when green energy has challenged the traditional oil barons, and when society has begun to value social awareness over capital gains.

Whether we choose to understand their preferences or not, they are the future of the US economy, and their propensities will dictate whether firms take off or sink for the next fifty years. These preferences, while different from my generation’s, are no mystery. With shrewd observation, venture capitalists can identify these preferences and invest in firms that advance them. The millennial investment wave is coming – it’s up to us whether we get left behind.

If you enjoyed our book series then please check out our Millennials and Markets Parts 1 and 2.

Millennials and Markets, Part II: Currencies and Gigs

Amit Raizada

July 6, 2020

In the first installment of my series on young people and their changing investment habits, we looked at how their “millennial outlook” on investment had been shaped by adverse economic conditions in which many were raised and by a desire to use investment as a strategic tool to drive social change. In that article, we discussed how sustainability is a significant concern among millennial investors, as many seek to patronize innovative green firms like Tesla in lieu of the traditional fossil fuel giants.

But it’s no surprise that climate change and sustainability are important to young people. In this article, I wanted to examine some millennial preferences that are less intuitive to outside investors. In many ways, this mirrors one of my favorite investment strategies – closely observing the preferences of young consumers to gain a foothold in the markets of the future.

Cryptocurrency

Cryptocurrencies like bitcoin, Ethereum, and Litecoin are continuing to gain popularity with millennials. But I believe a deeper, psychological shift is underlying the younger generations’ move to crypto. Many young people experienced the Great Recession in their teens and the COVID-19 pandemic in their twenties, is it any wonder that they’re circumspect about banks?

As the Federal Reserve enacts protocols of “unlimited” quantitative easing – a process where America’s central bank buys assets to pump money into the economy – there is a profound concern about the state of inflation, the dollar, and fiat money in general. If the Fed has the ability to essentially create money out of thin air, what does it mean for the value of our greater economy?

By investing in blockchain technology, investors are putting their money behind a valuable innovation with advantages that look quite enticing against the backdrop of today’s economic woes. By allocating a portion of their portfolio to cryptocurrency, the next generation is essentially hedging against the failings of the global economic system. If economic policy or global unrest causes the collapse of fiat currencies, what will be there to take its place? Cryptocurrency.

It’s important to note that the situation I’m describing is closer to a doomsday scenario than reality, and I wouldn’t necessarily recommend allocating a large sum of money to cryptocurrency. However, as a proponent of diversification, I side with millennials in my belief that crypto has its place in any well-diversified portfolio.

Solo Entrepreneurship / Self-Employment Technologies

Some larger corporations view their employees as expendable, which leads employees to take flight in search of better benefits and pay (I personally think companies need to incorporate a people-first approach into their business model).

With more tools available to nascent entrepreneurs than ever, the next generation of investors is turning to companies that empower the “little guy.” Shopify—an e-commerce platform that offers extensive resources for budding businesses—has seen an incredible resurgence since the crash in March, signaling that investors expect retail stores to increase their online presence (and sales) in the years to come. As barriers to entry are lifted and overhead expenses minimized, small business finds a space to thrive, making Shopify and related services like Square (a mobile payment company) incredibly enticing investment opportunities to the young investor.

As we see millennials make the jump from corporate jobs into self-employment, the gig economy is in full swing. Technological innovation—by way of Uber, Lyft, Grubhub, Instacart, etc.—has afforded people the opportunity to dictate their own hours, pay, and freedom. Younger generations are serious about freedom, and their investments show that.

If you enjoyed our book series then please check out our Millennials and Markets Parts 1 and 3.

Millennials and Markets, Part I: Introduction and Sustainability

Amit Raizada

June 9, 2020

2020 has been unlike anything our country has seen in a generation. Between a global pandemic and unprecedented economic uncertainty, this year has been a dismaying and disillusioning time for our younger generations, who are now tasked with building a life and achieving financial stability amidst great insecurity.

Despite these difficulties, young people are still choosing to invest their money – and their faith – in the market. But some of the ways they’ve chosen to do so, undoubtedly informed by their experiences, have been markedly different from those exhibited by generations past. For younger investors, it’s no longer just about the monetary return. Young people today see investment as a tool to induce societal change. 

Gordon Gekko’s famous "greed is good" doctrine is out, replaced by an investment mantra that privileges social impact over raw returns.

In this series of three articles, I look at ways young people, who came up amid the economic uncertainty of two major recessions and a global war on terror, choose to invest their money, and what these changes mean for the venture capital industry.

For the last few years, we’ve seen report after report about millennials’ reluctance to jump into the market, with many young Americans opting to hide their extra cash in the sofa and savings accounts. Yet, others have been holding out for the right moment, citing an overvalued market and an eagerness to "buy low." Well, for those who have been holding out, their time came this March as the stock market crashed nearly 30 percent due to the worsening reality of the coronavirus pandemic. As fearless millennials began to flood the market with investments, we were finally able to get some insight into their investing habits—what they value, and just as interestingly, what they don’t.

As CEO of Spectrum Business Ventures, I saw that, as the market bottomed out, there was an opportunity to place new strategic ventures at a time when others saw fiscal collapse. And, to my surprise, many millennials did too. But unlike generations past, millennials don’t choose their investments based purely on ROI; the invest in the firms and ventures that will help shape the world in accordance with their social and political preferences. In this first article, we look at one of the primary ways that millennials have “put their money where their mouth is” and made social statements with their wallets during this volatile period: sustainability.

Sustainability

Young people value sustainability to such a degree that green living has become an indelible component of the millennial experience.

As I’ve noted before, following emerging trends is one of the most important things an investor can do when searching for the next big company. It’s no surprise that some of the biggest winners over the last year have been millennial favorites like Tesla and Beyond Meat. Their financial success is a prime indicator that market sentiment is swaying toward sustainable, eco-friendly products and services. And millennials are leading that surge: SoFi Invest (a millennial-specific financial firm) noted that Tesla has been the most purchased stock on its platform for significant periods at a time.

On the flip side, we also witnessed the price of crude oil take a severe dive as falling demand and oversupply hit the once-dominant energy commodity (remember when crude was trading at -$37 a barrel?). In my opinion, this didn’t just come about because a slowdown in global activity—this was a culmination of investors’ fears of changing spending habits among the next generation. Millennials are rightly asking themselves why it’s necessary to fund ecologically harmful fuels when sustainable alternatives are viable and increasingly available. This is exactly why sustainable funds have outperformed their less sustainable peers during the pandemic.