Unicorns Seemingly Reach a Tipping Point
techcrunch.com
techcrunch.com
The company I work at took... 11 years to get to this valuation, so it's not on the list. It took this long because there were very few investment rounds, as the company has been profitable from year 3 onwards.
I am pretty amused at how it's only the valuation that counts to be a unicorn - for example there are some companies who took $300M in investment, are burning really heavy cash, and have the $1B valuation since the last, $200M round. The media covers these companies much more extensively then they have ever covered us, or similar companies who are doing well and just don't take further investment. Just looknig at the financial structure, cash flow and market saturation, there are good unicorns, bad unicors and then the ones in between.
Before joining any company, unicorn or not, just do your due diligence. All companies will tell you how insanely much the options will be worth assuming the 50% annual growth the next 5 years, and winning big in the market. But a share or option is only a promise, and it's only as good as the company, the team, the founders - and the economy.
VC's set the prices after all.
if i were a vc, i'd also want my entrepreneurs to take some money so they can focus on more important things. the executive team of a funded company with real employees and real expectations of not pissing away a small fortune and many careers should not be worried about personal money at all. they should have enough disposable income to get all their personal luxury crap like laundry service and car rides, fancy gym memberships and whatnot taken care of. supporting a family? then it's even more important because it relieves the stress of multiple people which would have been the executives' to bear.
plus, a pissed off founder that got ejected from their own company after years of work and no compensation..... not a recipe for good things. in fact it's a recipe for very, very bad things.
Such as…? If they weren't compensated, and don't have money, how much damage can they do?
If you're talking about control of another company, I'd imagine there'd be some time period of non-compete, and trouble finding new investment (assuming investment was needed).
If we're predicting upcoming bailouts from this crash, I would bet on U.S. oil companies and everything big in China. China could potentially cause a massive earthquake in international trade.
The student-loan bubble is also a massive debt overhang that could cause huge repercussions, but I don't see a trigger that would cause it to burst.
https://www.cbinsights.com/blog/unicorn-companies-worth-less... [August 2015]
(It's also less than Alphabet, given stock price movements since August. Take Uber and Xiaomi out of the unicorn list and the aggregate value of all unicorns combined is a little less than Microsoft.)
The total value of unicorns, including Uber and Xiaomi, is roughly 10% of the NASDAQ 100. [per same link]
The total value of the NASDAQ 100 is about 1/4 that of the S&P 500:
http://marketcapitalizations.com/historical-data/total-marke...
Multiply them out and all unicorns together are worth about 2-3% of the S&P 500, or less than 1/4 of the decline since the beginning of the year. That's the typical fluctuation in value on a fairly active trading day.
i think this is correct but incomplete. in the modern global financial system there can be very long-range correlations between investors in both the short term and the long term. if those private investors' performance is highly coupled with the health of large financial institutions it could destabilize everything.
when all the debt and credit in the world is structured and restructured into more and more complex financial products local risk can easily become systemic.
Especially, since people can't default on them.
So the hangover will stay with us for as long as people who took student loans are alive. (Or perhaps even manage to pay them off.)
I don't think this is how it works. The problem is there is too much speculative capital floating around; it creates bubbles anywhere some rich dudes smell opportunity. It does not have to be a jackpot; any hope of a fat percentage will bring the money around.
Jumping into the article...
> the media has been almost singularly obsessed with companies valued at north of a billion dollars
Wow, Techcrunch. That's the pot calling the kettle black. Don't you think?
Markets create zig-zaggy lines. Media will be there to report on every zig-zag. We'll waste our time reading these articles thinking they are important.
At least with unicorns it makes sense.
It was always ironic...the whole point of a "unicorn" is that it doesn't exist.
In psychology, this is referred to as Projection.
However, if I remember correctly, it was basically Stewart taking advantage of the investor frenzy and putting a ton of cash in the bank.
It's not like they're burning it on ads or promos like Groupon or Uber. My feeling was they were taking advantage of the investing environment to really shore up their cash reserves - no matter the valuation.
"It’s pretty straightforward. I’ve been in this industry for 20 years. This is the best time to raise money ever. It might be the best time for any kind of business in any industry to raise money for all of history, like since the time of the ancient Egyptians. It’s certainly the best time for late-stage start-ups to raise money from venture capitalists since this dynamic has been around.
And as a board member and a C.E.O., I have a responsibility to our employees, to our customers. And as a fiduciary, I think it would be almost imprudent for me not to accept $160 million bucks for 5-ish percent of the company when it’s offered on favorable terms."
It surprised me in the 1999 boom and crash how few players seemed to recognise there was a bubble and game the system. Most of them believed the hype and went bust. Only a few seemed to recognise their valuations were crazy and that could be taken advantage of such as AOL merging with Time Warner. I think Butterfield is one of the few to recognise the hype and take advantage this time around. Many others are using the available cash to hire excessive numbers of expensive employees which may bring them down when things dry up.
[0] http://bits.blogs.nytimes.com/2015/04/16/is-slack-really-wor...
IMO the tipping point has been obviously visible for some time now - many VCs even openly admitted as such. The trick with doomsaying is that even if you can accurately predict doom, it's hard to predict when everything is going to explode.
So yeah, the peanut gallery like myself have been preaching this for a while, but honestly nobody could've predicted with any precision when it was going to happen.
As an employee though you can de-risk yourself by simply not playing in the first place - this is a problem that's largely isolated to high-valuation startups that don't seem to have a handle on profitability.
Profitable companies are doing fine, and will survive all of this without much pain.
If you're working for a company that has taken a substantial amount of funding, is as of yet not cashflow-positive, and doesn't have a long runway, I'd be a bit worried.