OLA Electric & WeWork Bub-ble

In May ’17, Ola Electric was set up as a 100 percent subsidiary of ANI Technologies. Ola said that the spin-off was mainly it saw the need to have a team with a single-minded focus and the skills to build an EV business.

Between Dec ’18 & Jan ’19, the founder and CEO of Ola, Bhavish, purchased 92.5% of the stake in Ola Electric for Rs 92,500, rest was held by Ola for using its brand name. In March this year, Ola Electric raised $56.4 mn.

Source: https://inc42.com/

And in July, Ola Electric announced that another $250 million was raised from SoftBank at a valuation of $1 billion. In January, Ola Electric was valued at Rs 1 lakh by Bhavish Aggarwal, and in July, it was valued at $1 billion.

In less than six months what did Ola Electric exactly do to reach a billion dollars? Total shareholding of Aggarwal stands at 40% in Ola Electric worth $400 million. And, 6.7 percent in Ola worth $382 million.

What surprising is that his stake in Ola Electric is worth more than what he has made from Ola, almost a decade old company.

Considering WeWork now

Underwriters for the co-working startup WeWork have slashed valuation expectations ahead of its IPO to as low as $15bn from $47bn which it received in January 2019 during the last round of venture funding.

The rationale behind big venture funds paying irrational valuations can be explained by one of the theories of behavioral finance — “The Greater Fool Theory” that argues investors often buy into overpriced assets because they assume that there always be a “greater fool” who is willing to pay more.

Arush Sharma
Source: https://www.forexlive.com/

Here’s how John Maynard Keynes explained the Greater Fool Theory:

Imagine a beauty pageant, where the judges knew that, because beauty was in the eye of the beholder, the contest would be decided on the judge’s perception of beauty. Someone who wanted to predict the outcome would have to assess the judge’s perceptions, not the contestant’s beauty. As a result, your vote for the winner would not depend on who you thought was prettiest. Instead, your vote would depend on how you thought the judges would vote.

Investors have become increasingly skeptical of profit-free tech, or tech-related, companies that have built their businesses on funding from Silicon Valley cash with a business model is still largely unproven.

WeWork has taken on $47B in rental commitments, which it will be responsible for paying out over the next 5–10 years. If a recession should hit, WeWork could find itself holding the bill for obligations it cannot meet.

Huge losses to the tune $500mn, the founder’s dodgy transactions with the company & the unproven business model have put off even the optimists. Should profitability be compromised in the context of growth?

The question is whether companies are being built as sustainable entities or there is another bubble waiting to be pricked?

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Student | Sporadic writer | Voracious reader | Traveler | Observer | Thinker https://www.linkedin.com/in/sharma-arush/ https://www.arushsharma.com/

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Arush Sharma

Arush Sharma

Student | Sporadic writer | Voracious reader | Traveler | Observer | Thinker https://www.linkedin.com/in/sharma-arush/ https://www.arushsharma.com/

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