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Expect Some Unicorns to Lose Their Horns, and It Won’t Be Pretty

nytimes.com

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Re: Expect Some Unicorns to Lose Their Horns, and It Won’t Be Pretty

#71

Post by at5 »

ewindisch wrote: post #42

It's been argued that the deal structure of companies, particularly unicorns, has begun to look like debt[1]. Low interest rates and easy money has created debt. Massive bubbling amount of debt. Crashing debt bubbles is not fun, just ask anyone that lost their shirt in 1929. There is a paper[2] from this past June that goes deep into this, highlighting how and why debt bubbles are so dangerous. TL;DR? At least checko…

Have to disagree. They're still preferred equity instruments with unique trigger provisions. Higher up in the capital structure but not debt; you can't credit bid using these instruments in a Chapter 11 scenario and they aren't afforded the same protections in bankruptcy court. What attracts investors to debt instruments are the interest payments. You'd prefer PIK (payment in kind) interest on debt as opposed to cash payments in a low interest rate environment but that doesn't translate to pref equity instruments.

The unique feature of debt vs equity is that debt has a concave investment profile; you know exactly what you should be getting upon maturity (principal + interest payments). Equity has a convex investment profile; you get the residual value after subtracting face value of debt from the enterprise value.

Re: Expect Some Unicorns to Lose Their Horns, and It Won’t Be Pretty

#72

Post by SilasX »

aaroninsf wrote: post #30
immad wrote: post #24

Earlier quoted context omitted.

Basically anyone at or near profitability can weather most storms

In the immortal words of Mr Schrute, "false." Profitability depends on a network of flowing capital. When the input (e.g. of venture funding) dry up, profits will vanish in a shockwave. That is dramatically true for companies whose business model is to provide services and products for either other companies in the network... ...but also for those catering to their employees. IMHO a lot of 'problems' which seemed to…

Er, what? If they're profitable, the further capital and financing becomes a nice-to-have, not a need-to-have. It's no longer a business killer when it goes away.

Re: Expect Some Unicorns to Lose Their Horns, and It Won’t Be Pretty

#73

Post by kzhahou »

auntienomen wrote: post #54
kzhahou wrote: post #11

Earlier quoted context omitted.

You're getting downvoted, but there's lots of value in your statement. Language is important, and the choice of words will frame narratives and reveal hidden truths and agendas. The press and HN/etc DOES talk a ton about unicorns. It's the only grade that has its own name. There's no word for a $10-25m startup, or a $100-500m startup. No, only $1B-unicorns. They have their own name and we're obsessed with them. This…

$10-25M: Goblin $25-50M: Elf $100-500M: Centaur Please let this catch on.

Yea, I was thinking "centaur" too!! It's perfect.

How about "hafling" for new startup with <$500K in angel funding?

Re: Expect Some Unicorns to Lose Their Horns, and It Won’t Be Pretty

#74

Post by at5 »

rcarrigan87 wrote: post #36
27182818284 wrote: post #3

When I read old case studies like WebVan it is hard for me to believe in a bubble. I do think their valuations are too high, but they certainly aren't zero--more than half of the people I know have taken and Uber or Lyft more than once, for example.

I'm not sure Uber is really who the article is talking about. Some companies really have proven their Unicorn status. Everyone I know uses Uber a lot

Still possible for Uber to be overvalued though. Fedex, a proven business, has an EV of $39BN and FCF of ~$700MM. Uber has a $63BN valuation and loses money. Uber could take over the world. Or it might not. A lot of assumptions baked into that $63BN number. Will be interesting

Re: Expect Some Unicorns to Lose Their Horns, and It Won’t Be Pretty

#75

Post by Blackthorn »

SilasX wrote: post #72
aaroninsf wrote: post #30

Earlier quoted context omitted.

In the immortal words of Mr Schrute, "false." Profitability depends on a network of flowing capital. When the input (e.g. of venture funding) dry up, profits will vanish in a shockwave. That is dramatically true for companies whose business model is to provide services and products for either other companies in the network... ...but also for those catering to their employees. IMHO a lot of 'problems' which seemed to…

Er, what? If they're profitable, the further capital and financing becomes a nice-to-have, not a need-to-have. It's no longer a business killer when it goes away.

The point is that the storm will take their income streams (customers) away from them, making them no longer profitable.

Re: Expect Some Unicorns to Lose Their Horns, and It Won’t Be Pretty

#77

Post by telotortium »

kzhahou wrote: post #11
draw_down wrote: post #5

Boy oh boy, this is all we talk about anymore. Always specifically in the language of unicorns too. People seem to have really latched on to that.

You're getting downvoted, but there's lots of value in your statement. Language is important, and the choice of words will frame narratives and reveal hidden truths and agendas. The press and HN/etc DOES talk a ton about unicorns. It's the only grade that has its own name. There's no word for a $10-25m startup, or a $100-500m startup. No, only $1B-unicorns. They have their own name and we're obsessed with them. This…

Well, "decacorn" for $10B already exists, although that's just a variation on "unicorn".

Re: Expect Some Unicorns to Lose Their Horns, and It Won’t Be Pretty

#79

Post by Buttons840 »

paulpauper wrote: post #63

Haven't we been 'expecting' this since 2012, yet the biggest, most successful unicorns keep going up in value. For all the hype and doom about Square stock, the price is back to where it was when it began trading a month ago, although it has fallen 20% in recent weeks. But this is a good opportunity for employees to understand the risks of stock options, but it's not like the world is coming to an end. Such risks hav…

Here's a 5 year old poll from HN: https://news.ycombinator.com/item?id=2231352

The majority had a pessimistic outlook at at least thought "something is going on".

Re: Expect Some Unicorns to Lose Their Horns, and It Won’t Be Pretty

#80

Post by w4 »

alextgordon wrote: post #61
mark242 wrote: post #51

Earlier quoted context omitted.

"With that being said given the state of the public market (going down + low dividends) startups will still look sexy for a long time. I wouldn't worry about it." This is such a ridiculous comment that it needs to be highlighted for just how myopic it really is. Angel-and-after VC investment has been driven, increasingly, by the effects of ZIRP. "Fuck it, we don't have anywhere else to put our money, we might as well…

I agree 100% with your analysis long-term, however it seems unlikely that interest rates will rise for the foreseeable future.

> it seems unlikely that interest rates will rise for the foreseeable future

Based on the past two weeks of the stock market? I'm not so sure. A choppy stock market may certainly slow down the Fed's plans for 2016, but Yellen seems hellbent on getting away from ZIRP (and the aforementioned weirdness it creates, like pension funds investing heavily in CRUD apps) before the end of this business cycle. If she doesn't, she's reliant on Congress to prop up the economy whenever it inevitably enters a recession, and given Congress's recent track record I doubt that's a gamble she wants to take.

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