Hacker News Reader

Comment by api | Hacker News Reader

Unicorns feel like an artifact of making it a little too hard to go public.

That's one factor, and one that the investment community likes to play up. I'm not really sure this applies in the unicorn case, though, since the amount of money that they're raising in the "private IPOs" they do dwarfs the reporting costs of being a public company.

The biggest factor, in my opinion of course, is that some large private investors realized that they could capture most of the upside in an IPO before the IPO actually happened. The first real example of this is DST and Facebook. This has obvious advantages for the private investor -- they get access to a source of high quality risk for their portfolio. It also has obvious advantages for the company -- they get access to capital without having to manage to Wall St's expectations (and that's no minor thing).

Facebook was sort of the proto-unicorn, and it spawned imitators. Those imitators were not just startups, it also spawned imitators on the investment side. Suddenly a source of relatively easy money -- the initial IPO allocation in "sure thing" companies -- weren't available to the usual suspects, and those funds have naturally followed the leaders into the D, E, and F rounds of the new breed of unicorns. These deals are even accessible to relative small fry now -- private bankers will routinely shop around access to these funding rounds to people with assets "only" in the 10's of millions. Sometimes they're shopping a theoretical deal that they want to present to the company in question, and sometimes they're shopping AirBnB.

At any rate, many of the gains you used to be able to get in companies like Amazon or Google are now going to people able to get access to these pre-IPO deals. Financing private companies is very different now than it was 5 years ago.

Unicorns, do not exist. by the time they get to this size, scale, they are 'just' corporations, or a vaporcorp. The free market operates on the principal of a products value is whatever the market is willing to pay for it. Going public or being acquired provides a value. Everything else as far as valuations, even for a profitable company that has been around 50 years are just estimates.

Unicorns and Valuations are like Schrödinger's cat... until you open the box they are neither dead or alive, not worth 10Billion or Zer0

Exactly, no one wants the additional overhead, requirements, and legalities that go along with going public.

That might be a good thing. I'm still not convinced that a lot of these high-flying "unicorns" are really worth their valuations in a meaningful way. If Uber were to go public today, they'd immediately switch from "startup cutting legal corners" to "entrenched corporation doing illegal-ish things". Pulling back the covers of their financials is one thing that would bring an outcry of how much money they make off the backs of people that they dump liability onto.

The overhead, requirements and legalities are there for a reason. If you've raised $10b, you can afford the overhead dollar amount; but can you afford the visibility?

Yeah, it really sucks to be forced to act like a grown-up, real company spending money on oversight and compliance. Much more fun to just buy pingpong tables and keep the beer kegs full.

It's more than just overhead - going public forces you to think in terms of quarterly earnings reports.

It's very hard for a tech company to thrive in that kind of environment - capital expenditures required to develop new products or enter new markets will often not be profitable for several years, and getting the public market to understand that is impossible.

Focus on quarterly numbers is a side effect, which is unfortunate. You go public not because you want to report quarterly. You go public because you want public funding and potentially better terms than private funding.

So public markets essentially make long-term thinking impossible?

Well, that's overly binary; it creates strong pressures to focus on short-term results rather than making long-term thinking impossible. (If enough of your stock is held by arms-length investors interested primarily in maximizing short-term returns, it could become impossible for management to manage based on long-term thinking where that conflicts with perceived near-term optimality -- since they will be replaced if they do -- but most IPOs don't actually produce that kind of distribution of stock.

Come on, capital expenditures to develop new products or enter new products have been a part of business since forever, and indeed the cost to develop a new product for a traditional company (say, a car company) is probably orders of magnitude higher than the cost to develop a new pure-software product.

I mean, is there some kind of truth that it's harder for public companies to do ultra-long-range moonshot stuff? Maybe. But the idea that this is what's keeping Uber or AirBnB or Palantir from going public is ridiculous.

Not entirely true. IPO as a process exists to allow companies to raise money from the public, especially when private funding is not available. Overhead, requirements and legalities are a side effect, and if you have any money in a public market (like 401(k) in US), you absolutely want that. I do.

When private funding is available, IPO is not needed by definition. And since comp structures are set up with the expectation of IPO or exit, it's employees who are affected.

If you are negotiating an offer with a private company, you should attempt to price the risk of having to forfeit your stock comp. This risk has increased recently (that's what this story is about) but most people still under-negotiate it in their offers.

Reply on news.ycombinator.com