Missing out on investing in a transcendent company can feel like a missed opportunity, comparable to being the one person at work not to buy a lottery ticket if your office pool’s numbers ever were to hit big.
“Buyer’s remorse” is a feeling all-too-common in the investing world, but what term exists that can accurately encompass the feeling of an investor who passes on the next Uber? A new trend that is accelerating alongside the rising cases of startup success is “derivative startups”, or companies whose sole business is centered on the success of a name-brand startup, a la Uber, whose valuation recently surpassed the $40 billion mark. These “derivative startups” are seeking to capitalize on a symbiotic relationship with household names, essentially occupying the role of “remora” to Uber’s “shark”.
A company that bases its’ own fortunes off of the already realized success of a name-brand company enjoys some of the perks of “piggybacking” the larger company, but also experiences risks that are pretty much unique to this new and emerging classification of “derivative startup”. Despite the “piggyback” effect, these derivative startups experience their own risks, such as obtaining rounds of funding and hiring staff, yet they also absorb some of the second-hand risk of the larger startups that they are looking to service.
Breeze, a car-leasing service based in San Francisco, is the quintessential case of the double-edged sword business model that the derivative startup carries. Breeze has capitalized on Uber’s exponential expansion, upwards of 50,000 new drivers a month, by leasing vehicles to these prospective Uber drivers, at a rate of $195 per week. Although Breeze owes its existence to Uber’s dominance in the ride-sharing marketplace, Breeze has also inherited some of the compliance and regulatory issues that have haunted Uber in its not-so-far-fetched quest for global ubiquity. Breeze’s very existence was put in jeopardy last year when Uber was forced to prohibit drivers from using vehicles that were registered to Breeze, due to scrutiny from regulators. The derivative startup was able to adapt its’ leasing structure to sustain its’ business model, yet Breeze will continue to operate against the looming threat that Uber could utilize their vast array of assets in order to provide its’ drivers with vehicles themselves, removing the need for Breeze’s services.
Another derivative startup that centered its business model on a larger entity is Pillow, formerly known as “AirEnvy”, which assists users of Airbnb. The company, which helps Airbnb users in the pricing and maintenance of rental properties, decided to change its’ name to “Pillow” in order to diversify itself from the fortunes of Airbnb and to open itself to other opportunities in the larger property rental marketplace. The emerging trend of derivative startups is likely to stay, so long as startup companies can attain sky-high valuations that have become commonplace today.