As a confession, I started this post intending to write about Peloton Interactive, Inc. (NASDAQ: PTON)
, the next big new offering hitting markets, but I got distracted along the way. As I read the Peloton prospectus, with the descriptions of its business, its measure of total market size and its success at scaling up revenues accompanied by large losses, I had a feeling of déjà vu, since other prospectuses that I had read this year from Lyft, Uber Technologies Inc (NYSE: UBER)
, Slack, Pinterest and, most recently, WeWorks
, not only shared many of the same characteristics, but also used much of the same language.
I briefly considered the possibility that these companies were using a common prospectus app, where given a bare bones description, a 250-page prospectus would be generated, complete with the requisite buzz words and corporate governance details. Setting aside that cynical thought, I think it is far more likely that these companies are emphasizing those features that allowed them to get to where they are today, and that examining these shared features should give us insight into how venture capitalists price companies, and the dangers of basing what you pay on VC pricing. To keep my write up from becoming too long (and I don’t think I succeeded), I will use only Uber, WeWork and Peloton to illustrate what I see as the commonalities in their investment pitches, when I could have spread my net wider to include all IPOs this year.
1. Unbounded Potential Markets
It is natural that companies, especially early in their lives, puff up their business descriptions and inflate their potential markets, but the companies that have gone public this year seem to have taken it to an art form. Lyft, which went public before Uber, described themselves as a transportation company, a little over-the-top for a car service company, but Uber topped this easily, with their identification as a personal mobility company
. WeWork, in its prospectus, steers clear of ever describing itself as being in real estate, framing itself instead as a community company
, whatever that means. Peloton, in perhaps the widest stretch of all, calls itself a technology, media, software, product, experience, fitness, design, retail, apparel and logistics
company, and names itself Peloton Interactive for emphasis. In conjunction with these grandiose business descriptions, each of the company’s IPOs also lists a total addressable or accessible market (TAM) that it is targeting. While this is a measure, initiated with good sense
, it has become a buzzword that means close to nothing for these young companies. In the picture below, I have taken the total market descriptions given in the Uber, WeWork and Peloton prospectuses:
If you believe these companies, Uber’s TAM is $5.71 trillion spread across 175 countries, and obtained by adding together all passenger vehicle and public transport spending, WeWork is looking at $3 trillion in office space opportunities and Peloton believers that it can sell its expensive exercise bikes and subscriptions to 45 million people in the US and 67 million globally.