Electric scooters are quite cool, but definitely not $1b cool

76% of US companies that went public last year were unprofitable

I’ve always had an interest in electric scooters. I started researching them in 2002, when I had to walk from the Port Authority Bus Terminal in New York at the corner of 42nd Street and 8th Avenue to my job at Lehman Brothers on 49th Street and 7th Avenue. I figured an electric scooter would get me there faster, zipping me through all the filth on 8th Avenue.

I wanted to buy something called a Zappy Turbo manufactured by a company called ZAP, but it weighed about 30 or 40 pounds and would have been a hassle to bring on the bus. Plus, the traffic laws surrounding scooters were a bit hazy (and still are). Plus, it was a bear market and riding an electric scooter to a Wall Street job was probably a firing offence.

There’s no denying electric scooters are cool. They are more environmentally friendly than cars and fun. I’ve always thought that they might be a solution to congestion in cities. Fast forward about 15 years and electric scooters are all the rage. Last week, an electric scooter-sharing start-up known as Bird achieved a $1 billion private valuation by raising $150 million funding.

Bird draws comparisons with Uber, but there are key differences, the main one being that Bird owns the scooters. This means that the (theoretical) profit margin on scooter rental is pretty low, with estimates of about 10 per cent. If you figure that Bird might make around $2.50 per ride in revenue, there are some estimates that Bird might make $14 million a year. But after paying for maintenance, charging and overhead, there might only be $1 million left.

There must be a lot of optimistic people in California, because a $1 billion valuation at some reasonable multiple assumes that Bird might one day have 75 times as many riders as it does currently. That implies Bird will expand to every US city and achieve a nearly 100 per cent adoption rate. So the $1 billion valuation is, to be blunt, kind of dumb.

Bird is very much an oldeconomy business with a neweconomy veneer. You use an application on your phone to locate a scooter (they have a or GPS), scan a code, rent it and ride it. Ask yourself, what would Bird be without the internet? What would it be if it were just a store where you could rent scooters? We have such a store where I live in Myrtle Beach, South Carolina, called Go Fast Scooters. It rents mopeds on Kings Highway South. This is an old-economy business. But it is surely profitable! It has to be, because it is not backed by venture capital. This is essentially what Bird is, without the app. I think Bird is one of many “unicorns” that don’t have a realistic hope of being profitable at any point in future.

Uber lost $4.5 billion last year, and I’m doubtful Uber will ever become meaningfully profitable. It is an intractable problem. In fact, 76 per cent of the companies that went public last year were unprofitable, the highest percentage since 2000.

Simply put, there are times when investors care about profits and times when they don’t. Right now, they don’t. Venture capital-backed companies received $84 billion in financing last year which is the most since you-know-when.

Whatever happened to ZAP? Its shares trade for around a penny each, down from a peak of about $100 in late 1999.