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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

#81

Post by tajen »

JonFish85 wrote: post #69
sjg007 wrote: post #67

Earlier quoted context omitted.

Are they overvalued? You are worth what someone will pay for you which either is based on what revenue you generate or what they believe you can sell for.

That is true, but with the caveat that there are often terms to what investors pay. If I invest $1,000 for 0.000000000001% of your company, but with a requirement that I am repaid $2,000 in the event of a liquidity event (plus some participation), it's not really much of a risk for me: I'm "guaranteed" a 100% return. The valuation is somewhat meaningless in this situation, except maybe in terms of marketing.

Aka "Preferrence shares", for those unfamiliar with the practice. In the example above, it makes the valuation virtually 100 trillions, except, like all valuations, it's virtual.

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

#83

Post by smt88 »

rcarrigan87 wrote: post #38
hluska wrote: post #2

I was pleasantly surprised by this article. I expected the usual 'the end is nigh, the bubble has popped, unicorns are screwed, we're all screwed' article. Instead, I was happy to find that it was about some of the ways that unicorns could or may have to protect employees, founders and early investors from down rounds. Purely as an educational experience, this article is certainly worth a read.

Yeah, it really is interesting to see the situation from multiple perspectives. I still wonder though, is this actually happening? Nothing in the many articles I've read suggests solid evidence that a majority of these companies are struggling. Just sound bytes from VCs pontificating.

"Struggling" is not the same as "no longer able to justify a highly optimistic valuation". Many unicorns could actually be profitable and still never justify a $1B+ valuation.

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

#84

Post by GCA10 »

michaelbuckbee wrote: post #21
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.

Things are different than the webvan bubble: many of these companies have substantial revenues, selling into a market of 10 to 20 times as many internet users, much cheaper infrastructure, etc.

Webvan had $178.5 million of revenue in 2000, selling in only a few markets, and it had semi-coherent plans for growing its revenue quite a lot farther by penetrating existing markets more deeply and adding new ones.

Trouble was, Webvan's way of doing business bled cash at a horrific rate. The bigger it got, the more money it lost. Investors got tired of throwing more cash into the company because the cash-bleed problem couldn't be fixed.

I don't think Webvan is the last company ever to suffer from such problems -- or to be unable to save itself if/when investors go on strike.

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

#85

Post by x0x0 »

rcarrigan87 wrote: post #33

This is almost becoming a self-fulfilling prophecy. Enough articles are written calling for down rounds, now investors are thinking down rounds, employees are sprucing up their resumes, lawyers are preparing for battle... Can anyone really say if there is any proof to this rhetoric. Are these companies really in such bad shape? *edit: spelling

we have an increasing amount of evidence that yes, they are overvalued.

Look at two things: long delays IPO-ing, and very poor performance of the 2015 cohort of tech IPOs. It's hard to avoid suspecting that companies would IPO if they could, and a large part of the reason they haven't is having to release to the public audited financial reports conforming to GAAP standards.

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

#86

Post by tormeh »

mark242 wrote: post #51
mbdev wrote: post #41

Earlier quoted context omitted.

All of it is because investment in Q4 of last year was lower than any Q after 2012. Which is a ridicules reason given that Q3 was by far the highest ever. 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.

"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…

Meanwhile, the stock market has been giving returns of 20% per year for the last couple of years. It's been crazy. And corporate bonds typically yield 5%. Savers don't need to care about what the interest rate is. The people who care are the people who lend to invest, for whom low interest rates means increasingly risky stuff is profitable.

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

#87

Post by pud »

mark242 wrote: post #53
frik wrote: post #26

What are the best books about the 2000 dot-com bubble?

This is all you need to read: https://web.archive.org/web/20050715000000*/http://www.fucke...

Founder of Fuckedcompany here.

Thanks!

I wrote a book, too:

http://www.amazon.com/Fd-Companies-Spectacular-Dot-com-Flame...

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

#88

Post by 0xCMP »

adevine wrote: post #46
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.

WebVan isn't the right analogy - a real estate bubble is a better one. In the .com bubble, no one was really sure how things would shake out, so there were lots of companies who wouldn't have succeeded no matter how big they got (the "losing money on every sale but making it up in volume" business plan). When the .com bubble crashed, real estate was seen as a much stronger investment because no matter how low it went…

This is a great explanation. Remember that the value in a stock is that you're owning X% of a business just like if you owned 100% of a coffee shop.

If you buy a coffee shop for 10% @ $100,000 that makes $10k/year you just bought a company for a P/E of 10. The value of a stock in that company is in the growth of that 10k over time that is either paid as a dividend or retained and valued in to the price of the stock. If you don't make money, or make much less than what you could be expected to grow, their value will fall.

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

#89

Post by kartickv »

If I were a founder who wanted to make sure employees and founders get a better deal, what are my options?

Can I accept money from investors only on the condition that they get paid only after employees and founders get paid a minimum amount, like $1M each?

The stronger version of idea is to not grant stock / stock options to employees (or grant only one share if needed for legal reasons). Instead offer a guarantee that only after they earn some large amount, enough to retire, say $10 million, will any investor receive anything. Employees would never make more than $10 million, but they would maximise the chance of making $10 million. This would make the startup a less risky place for an employee to work, assuming the goal is to maximise the probability of making enough to retire. Then the investors can have whatever liquidation preferences, seniority, ratchets and so on, as they want, and it wouldn't matter to either the founders or the employees.

I'm willing to accept a lower valuation (the certainty of a $100 million company is more important to me than a 20% chance of a billion dollar company).

Does this make sense? Would you suggest a different approach to reduce risk for founders and employees?

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

#90

Post by greggman »

kartickv wrote: post #89

If I were a founder who wanted to make sure employees and founders get a better deal, what are my options? Can I accept money from investors only on the condition that they get paid only after employees and founders get paid a minimum amount, like $1M each? The stronger version of idea is to not grant stock / stock options to employees (or grant only one share if needed for legal reasons). Instead offer a guarantee t…

I'm confused. Employees and founders get a salary. There is no risk to them. If the company fails the investors lose millions of dollars, the founders and employees leave with 1-2-3 years of salary in their pockets and then go get another job.

That is why investors get paid first. Am I missing something? I guess I don't understand where this idea that founders and employees should get paid first. In guessing because the did the work but they seem to be forgetting they also got paid for the work. As a startup it might have been less than some other jobs, in compensation they took some tiny tiny risk that if the company is successful they get a taste. But they risk is orders of magnitude less than the investors.

Sorry if I'm not understanding

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