Potentially Bigger Fools?

April 11, 2019 | BlogBlog

In the early days of the biotech revolution, the promise of the technology was so far ahead of the reality that “potentially bigger fools have already been identified” was a common, if not a droll response to the question “what is the financial plan?” This morning, I heard that Uber might raise $10 billion in its pending IPO. I can’t help but wonder if that’s the plan at Uber. It certainly fits with the facts so far.

But seriously, the mathematics of the internal rate of return (IRR) calculation emphasize nearer-term cash distributions. Given the billions already invested and lost in the business, can Uber have any realistic plan for earning – in a relevant time frame – positive cash flows sufficient to generate a decent risk-adjusted return on an immediate out-flow of an additional $10 billion? Other than a plan based on identifying potentially bigger fools? I suppose it worked for a few of the early biotech players, and what humanity has done, humanity can do again. So, at least, I’ve heard before. As, for example, in the first quarter of 2000.

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