Airtable CEO on the continued importance of getting a ‘unicorn’ valuation

What I find frustrating about this is if it leads a founder take liquidation preference multiples or other disadvantageous terms that drastically reduce my chance of seeing any payday as an employee. I've been around, so I'll take solid financials over juicy-looking smoke and mirrors any day, but my worry is the median startup employee is young and inexperienced enough that it probably serves the founder to play these games.

a company's valuation performance has always had a causal effect on business, even though academically it shouldn't.

banks found that out the hard way at the end of 2008, when companies wouldn't do business with banks with falling stock prices. even facebook found out the hard way after IPO when its stock was tanking and many tenured employees where questioning whether to stay. stock / valuation performance matters a lot.

Tesla has media presence, an existing customer base and an existing distribution network. Even if they come to the party late, they're not unlikely to take a slice of the market. Therefore, if I were investing in that sector I wouldn't discount them as a meaningful contestant, remembering they can always buy their way in to third party tech.

Let's consider what would happen if self-driving started to really work. Take a look at Navya [1] and Local Motors [2], both of which sell electric mini-buses which can cruise around an small controlled area such as an airport parking lot or college campus. They're slow and limited, but they are actually carrying a few passengers without a driver on board.

Are those companies unicorns. No. They seem to be valued for what they actually do. Which is replace a small number of low-wage employees with expensive hardware that requires extensive support infrastructure.

Think of what it looks like if this really works. They get a few major airports signed up for "transportation as a service". Their mini-buses go between terminals, out to long-term parking, and out to rental car lots. Fine. So now, at each airport, you have to have a garage, maintenance staff, a control center, and some arrangement for dealing with problems. All the same plant as a regular bus operator, plus the high-tech part, plus it has to be close because these things can't drive some distance on regular roads to a garage or parking lot.

It's "transportation as a service", which means you have to pay for all problems. Which will happen. You'll have people cleaning off graffiti, fixing corroded sensors in winter, towing in failed vehicles, and dealing with angry riders who missed their plane. All you've saved is the cost of the drivers. So you're probably not making big money off this.

It's so much easier at the hype stage. You don't even have to perform, let alone survive on your own cash flow.

[1] https://www.youtube.com/watch?v=TAAm-wLInkE [2] http://www.buffalo.edu/ubnow/stories/2018/08/olli-debut.html

> It's less clear to me why a valuation of over $1B matters to a private company though.

> hence public valuation would matter

There is your answer. IPO valuations have to come from somewhere, and the most recent private valuation is usually a good starting point for what investors will pay.

chatmasta already mentioned IPOs, so I'll just add that private companies can also often be acquisition targets.

Anything that helps anchor the price for a bid is helpful, so you'll always want to point to a number that's as high as possible. You will also want to call out which series of funding that number comes from, and hopefully those two things go hand in hand.

People are more likely to work for a unicorn because then they can put that on their resume. It also means the startup probably won't fold anytime soon, because too many people have a stake in its success at that valuation.

I agree with all the key points you have listed, I just wanted to add that a unicorn became a status symbol that can impact a variety of things:

* A supplier to the unicorn may perceive the company as a future star, which makes them decide to provide goods & services at a discounted price with the intention of having their business for multiple years with potential for new business areas

* A future employee can perceive the company as "the next big thing" and decide to work there in part, because of their status symbol

* The medium-large investors may mentally perceive the company as a 'sure bet'.

* Small investors may perceive the company as "one of the ones that the big investment guns have approved off"

* Future & current customers may perceive them as a successful company

* The 'unicorn' name is catchy, increasing the brand value

All in all, 'unicorns' is just a measurement stick. In theory a $990M can be just as successful as the $1B in the medium-long run, however, the perceived view from humans (yes, all of us), can have a material impact on the business

Great points, I think I agree on all of them. Cynically speaking, I think the answer is just that it's a round psychological number -- the three comma club. It's a rough binary signal that indicates growth and clout to a layman, and works reasonably well as a proxy therein, even if it's pretty noisy. I've personally noticed that working at unicorn companies has done a lot more for my career and network than non-unicorn companies, and it's done the same for lots of folks I worked with there, even those who weren't on as high profile projects as me and who felt like they didn't grow as much.

> agree with the child posters but they don't really answer the question of why $1B is important for the valuation in a way that, say, $990M would not be.

Brand value / free marketing. Hitting the 1B threshold unlocks a lot of publicity that 990 million doesn’t. The buzz that it generates aids both sales and recruiting efforts.

Yes, but they actually have to sell their shares for $x billion if they want to see any actual profit. Future investors are likely to be skeptical if the current and projected income doesn't match the valuation.

It's more complicated than that. What a company actually trades for in the open market is down to investors opinions and may be different from 'what the company is worth', which is also a little in the eye of the beholder.

However after the C the VCs may be able to report a 10x return to their investors.

No. You are conflating "valuation" with "value". Let me give you an example.

My company has 10 shares total and I manage to get you to buy one of them for $100. The logical conclusion is that the shares are worth $100 each and the company is worth $1000. You hold 1 share, and I hold 9 shares. I also have the $100 you gave me. So one can say that you bought 10% of the company at a $1000 valuation.

But let's say I don't do anything at all with the money you gave me and I had no other money to begin with. What that means is that you have 1 share and I have 9 shares and $100. If we liquidated the company now, you would get $10 back and I would keep $90. The company has a value of $100.

Now let's say that somebody is really interested in buying shares. I give you the OK to sell your share and somebody offers to buy it for $10,000. You sell your share for $10,000 (10% of the company). The logical conclusion is that the other 9 shares are worth $90,000 and the whole company has a valuation of $100,000. But I still only have $100 in the bank :-)

Now, let's say that encouraged by the huge profit you made, you buy 4 shares at $20,000 each from me. The valuation of the company is logically $200K because there are 10 shares and the last time someone bought some it was for $20K each. You own 40% of the company. I own %50 of the company and they person who bought the original share from you owns %10 of the company. The company has $80,100 in the bank. You try to sell your 4 shares now, but nobody wants to buy. The shares have a nominal value of $8,010 each ($80,100 / 10 shares), but nobody feels like buying. Your shares are worth 0 because I control the company and don't want to liquidate. Basically, I conned you into giving me $80,100 :-)

Shares are worth what other people are willing to pay for them. Whether or not someone will be willing to buy your shares back for the current "valuation" of the company depends a lot on the circumstances. Whether you are even able to sell your shares depends on agreements you made, etc, etc. You can easily have a company with a $1 billion valuation whose stock is worth less than toilet paper in reality.

Companies that are pre-IPO are really ripe for the hype machine. You generally can't trade their stock except at a "liquidation event". You can invest in them, and their valuation might climb, but you can actually realise any of that profit. If they pull a Theranos on you, then you lose all of that money. Once a company has IPOed, the stock is traded freely on the stock market. Since it is liquid, you are more likely to be able to sell your stock close to its current valuation. Keep in mind that this is still not the same as value -- stocks usually trade a prices of multiples of the current value (because people believe the companies will increase in value over time).

Edit: I have trouble multiplying by 4... :-P

Outside of the obvious increase in value, it tends to be lost that VCs are money managers.

Mark-ups serve as marketing for the next fund which they get a % of an annual basis. The time horizon to see any company turn to cash is so long that their major day-to-day level is to market a strong rising portfolio to new LPs for more money to manage.

Artificially inflating a valuation is not in VC interest - after all, an inflated valuation means that they're getting less % shares of the company for the same money.

VCs generally don't get any meaningful impact from intermediate numbers, they get their numbers - both regarding investor returns and their carry fees - only on exits. So the share they get for that money has a direct impact on how much money the VC personally takes home after the exit. Any before-exit valuations have only a PR effect for them (which may be a factor if they want to raise a new round anyway right now, and are failing at that - but if they can raise a new round, then this PR won't bring them any extra profit), and any useful effect on the secondary market is too far in future; if there's an investment round happening now, then any potential buyers would be in that investment now; at this point the participating VCs are participating because they want to increase (or at least maintain) their share, not divest it - and if they want to divest after a year or so, the valuation PR effect will have faded.

The benefits of such a valuation to the startup, on the other hand, are much more clear.

> If you don't raise enough, and need more funding later, doing a down round is extremely painful.

I hear this a lot, but I don't quite understand the sentiment. It's painful for whom? The earlier investor, sure, but not the founders.

Scenario 1: I have a round of funding at $1MM valuation then later a round of funding at a $10MM valuation.

Scenario 2: I have a round of funding at $100MM valuation then later a round of funding at a $10MM valuation.

Scenario 2 has a down round, but it's unclear to me how anyone in this scenario is worse off besides the suckers who bought in at a too high valuation. They just overpaid; that's all. The business and the other shareholders are strictly better off because they were able to get more cash for the shares sold.

"Accredited investor" in legal regulation terms is mostly a polite way to say "has enough money to not be permanently ruined if one of their big risky investments ends up in the hole".

That is to say, if your neighbor has 40 million dollars in the first place, he almost certainly counts as "accredited", unless he's also got 50 million sitting around in liabilities.

$75M in 2009. So no, not remotely.

ya but if you raise an extra 100M, that most likely is an up-round, which means the value of employee's equity has increased

example: as an employee you own 10% of the company. The 10% is worth $10. After company raises a 100M round and dilution has occurred, you own 1% of the company, but that 1% is now worth $50

who is being treated unfairly? I don't quite understand

if you're raising at a higher val, then owning a smaller % of something worth more is not a bad thing...

It's always good to take credit if you're reasonably sure you can make a return greater than the cost. When money is flowing easily, and therefore the cost is low, there is a good chance that you can make a great enough return to outweigh the cost.

Money is cheap right now, so it makes sense to get a lot of it while you can so you can ride out the next downturn when money will be expensive.

"I’m a big fan of Slack Technologies Inc.’s approach to corporate finance. Near the peak of the unicorn boom, in 2015, Slack Chief Executive Officer Stewart Butterfield correctly noted that “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.” The relevance of that point to Slack was not obvious, though, because it happened to have all the money it needed. A less financially savvy tech unicorn might have taken that as a reason not to raise more money, but Slack decided that cheap money was cheap money. ...Is 2019 the best time in history for tech unicorns to raise money from the public markets? Ehh, not particularly. The S&P 500 is down more than 10 percent from its peak last year. Volatility is up. There is an overhang of several very large rumored unicorn initial public offerings, most notably one from Uber Technologies Inc., which might distract investors from other unicorns. Fortunately for Slack, it still doesn’t seem to need any money, perhaps because it did so very much top-ticking in the private markets. This gives it a certain amount of flexibility with respect to corporate finance. So:

Slack Technologies Inc. is planning to go public through a direct listing, "

https://www.bloomberg.com/opinion/articles/2019-01-11/direct...

It happens organically with Airtable. We do custom implementations of it with companies. Most get started by someone because its so easy to get up and going but then reach a point where they need some more expertise and bring us in.

That exists. Its currently in beta. I have had access to it for months. You should be able to ask them to turn it on for you.