Over the last several years, the US economy has benefited from low-priced money in so many ways. One of those is ready capital for start-up companies, which allowed those start-ups to sell products and services at a loss. Uber, DoorDash, Rivian, Carvana… the list is long.
Recently, Uber announced higher prices, which are rippling through the short ride ecosystem. This is just one example of the end of low prices from the host of new companies that provide services that some view as part of daily life. No more can these companies glide along by using cheap capital; they must produce profits. No profits, no access to capital.
These price increases will also ripple into the overall inflation numbers we are experiencing.
If you’re invested in money-losing companies, time to take a long look at those financials. How fast do they burn cash, and how much cash do they have now? Check to see if the company has issued debt: what are the ratings on that debt? What has the trend of losses been – less losing, or more losing? This is just a start. Looking at other competitors who are also hungry for the same business but have deeper pockets is the second round of investigation. You might believe you have a promising stock only to find out that some private company you never heard of is about to take over its market.
In a larger sense, a strangled start-up environment will slow US growth – so this becomes everyone’s problem, not just that of investors willing to speculate by funding these companies. The true test will come from the jobs picture at start-ups: when layoffs come, you know reality is dawning.