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The Age of Unicorns

fortune.com

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Re: The Age of Unicorns

#11

Post by phreeza »

lisa_henderson wrote: post #9

About this: "When Cowboy Ventures founder Aileen Lee coined the term unicorn as a label for such corporate creatures in a November 2013 TechCrunch blog post, just 39 of the past decade’s VC-backed U.S. software startups had topped the $1 billion valuation mark. Now, casting a wider net, Fortune counts more than 80 startups that have been valued at $1 billion or more by venture capitalists." Again, this is because int…

I completely agree that low interest rates are to blame for these high valuations, but your numbers example seems off. By that logic, shouldn't company valuations shoot to infinity if interest rates reach 0% (which they effectively have).

Re: The Age of Unicorns

#12

Post by lisa_henderson »

phreeza wrote: post #11
lisa_henderson wrote: post #9

About this: "When Cowboy Ventures founder Aileen Lee coined the term unicorn as a label for such corporate creatures in a November 2013 TechCrunch blog post, just 39 of the past decade’s VC-backed U.S. software startups had topped the $1 billion valuation mark. Now, casting a wider net, Fortune counts more than 80 startups that have been valued at $1 billion or more by venture capitalists." Again, this is because int…

I completely agree that low interest rates are to blame for these high valuations, but your numbers example seems off. By that logic, shouldn't company valuations shoot to infinity if interest rates reach 0% (which they effectively have).

Yes, valuations would shoot to infinity if investors believed that interest rates would reach 0% and then stay there forever. Finite valuations are based on the idea that, at some point in the future, interest rates will be above 0%.

Also, although interest rates for the national governments of some countries have reached 0%, or even negative numbers, commercial interest rates are still slightly positive.

Re: The Age of Unicorns

#13

Post by debacle »

sgt101 wrote: post #3

I feel a terrible unease about these companies. It's not the bloated valuations, but rather the motivation for running companies in this way. The plc has many critics, as a model of risk sharing and financial transparency it's got huge holes right through it as Enron (and other car crashes) showed. But who has a clue about what's happening in these companies, and who, and what (banks, pension companies, taxpayers, pl…

I get you. Just yesterday I was thinking about how valuable everything these companies give us for free is, and how Google specifically has completely distorted what people's perceptions are on the value of software, especially email. Google can have 50 loss leaders that completely obliterate the ability to profit in certain segments for other companies, and they're so massive they don't even feel it.

Re: The Age of Unicorns

#14

Post by gmarx »

phreeza wrote: post #11
lisa_henderson wrote: post #9

About this: "When Cowboy Ventures founder Aileen Lee coined the term unicorn as a label for such corporate creatures in a November 2013 TechCrunch blog post, just 39 of the past decade’s VC-backed U.S. software startups had topped the $1 billion valuation mark. Now, casting a wider net, Fortune counts more than 80 startups that have been valued at $1 billion or more by venture capitalists." Again, this is because int…

I completely agree that low interest rates are to blame for these high valuations, but your numbers example seems off. By that logic, shouldn't company valuations shoot to infinity if interest rates reach 0% (which they effectively have).

Those are just the very low interest rates the central bank sets. In practice there will always be higher rates for higher risk loans, especially corporate bonds. The point is valid to some extent but must take account of all investment alternatives and the risk.

That said, I can't help but intuit that these valuations are the result of too much cheap money. The closest phenomenon is probably rich people bidding up fine (and otherwise) art. Seriously, do economists study the difference between extra cash in the hands of very rich people vs everyone else?

Re: The Age of Unicorns

#15

Post by thedufer »

phreeza wrote: post #11
lisa_henderson wrote: post #9

About this: "When Cowboy Ventures founder Aileen Lee coined the term unicorn as a label for such corporate creatures in a November 2013 TechCrunch blog post, just 39 of the past decade’s VC-backed U.S. software startups had topped the $1 billion valuation mark. Now, casting a wider net, Fortune counts more than 80 startups that have been valued at $1 billion or more by venture capitalists." Again, this is because int…

I completely agree that low interest rates are to blame for these high valuations, but your numbers example seems off. By that logic, shouldn't company valuations shoot to infinity if interest rates reach 0% (which they effectively have).

The interest rate in question here is probably the long-term rate, which is unlikely to go to 0. That would indicate a wide-spread belief that interest rates will remain at 0 for the foreseeable future, in addition to current interest rates being at 0. It's difficult to imagine a situation in which this would be true.

Re: The Age of Unicorns

#16

Post by cullenking »

debacle wrote: post #13
sgt101 wrote: post #3

I feel a terrible unease about these companies. It's not the bloated valuations, but rather the motivation for running companies in this way. The plc has many critics, as a model of risk sharing and financial transparency it's got huge holes right through it as Enron (and other car crashes) showed. But who has a clue about what's happening in these companies, and who, and what (banks, pension companies, taxpayers, pl…

I get you. Just yesterday I was thinking about how valuable everything these companies give us for free is, and how Google specifically has completely distorted what people's perceptions are on the value of software, especially email. Google can have 50 loss leaders that completely obliterate the ability to profit in certain segments for other companies, and they're so massive they don't even feel it.

This is actually a very common problem we see with our service. Tons of 1 star reviews in Play/iTunes because we dare to withhold (valuable) features in order to make enough profit to run the business. Once a week we get very very negative (read: swearing) emails to customer support about needing a paid account to do certain things. Kinda a shame, considering the sheer value we offer 98% of our free users because 2% actually pay.

Preaching to the choir I am sure :)

Re: The Age of Unicorns

#17

Post by toomuchtodo »

thedufer wrote: post #15
phreeza wrote: post #11

Earlier quoted context omitted.

I completely agree that low interest rates are to blame for these high valuations, but your numbers example seems off. By that logic, shouldn't company valuations shoot to infinity if interest rates reach 0% (which they effectively have).

The interest rate in question here is probably the long-term rate, which is unlikely to go to 0. That would indicate a wide-spread belief that interest rates will remain at 0 for the foreseeable future, in addition to current interest rates being at 0. It's difficult to imagine a situation in which this would be true.

> It's difficult to imagine a situation in which this would be true.

Japan.

Re: The Age of Unicorns

#18

Post by gjm11 »

phreeza wrote: post #11
lisa_henderson wrote: post #9

About this: "When Cowboy Ventures founder Aileen Lee coined the term unicorn as a label for such corporate creatures in a November 2013 TechCrunch blog post, just 39 of the past decade’s VC-backed U.S. software startups had topped the $1 billion valuation mark. Now, casting a wider net, Fortune counts more than 80 startups that have been valued at $1 billion or more by venture capitalists." Again, this is because int…

I completely agree that low interest rates are to blame for these high valuations, but your numbers example seems off. By that logic, shouldn't company valuations shoot to infinity if interest rates reach 0% (which they effectively have).

Valuations would go to infinity if both the following were true: (1) Interest rates are zero; (2) investing in a company brings an expectation of nonzero returns. (More precisely: returns sufficient to outweigh the risk that the company fails.)

Unless everyone in the market is grossly irrational, 1 and 2 should not both remain true for long. If you can invest in FooCorp and make 1% per year (after adjusting for risk) then you will be happy to pay 0.5% per year to borrow money, and there will be people who will be happy to lend to you on those terms.

Re: The Age of Unicorns

#19

Post by debacle »

cullenking wrote: post #16
debacle wrote: post #13

Earlier quoted context omitted.

I get you. Just yesterday I was thinking about how valuable everything these companies give us for free is, and how Google specifically has completely distorted what people's perceptions are on the value of software, especially email. Google can have 50 loss leaders that completely obliterate the ability to profit in certain segments for other companies, and they're so massive they don't even feel it.

This is actually a very common problem we see with our service. Tons of 1 star reviews in Play/iTunes because we dare to withhold (valuable) features in order to make enough profit to run the business. Once a week we get very very negative (read: swearing) emails to customer support about needing a paid account to do certain things. Kinda a shame, considering the sheer value we offer 98% of our free users because 2%…

Actually right now I'm geocoding about 100k addresses for completely free via Google's APIs. Something that would have cost a few hundred dollars a few years back, at the very least.

Re: The Age of Unicorns

#20

Post by thedufer »

toomuchtodo wrote: post #17
thedufer wrote: post #15

Earlier quoted context omitted.

The interest rate in question here is probably the long-term rate, which is unlikely to go to 0. That would indicate a wide-spread belief that interest rates will remain at 0 for the foreseeable future, in addition to current interest rates being at 0. It's difficult to imagine a situation in which this would be true.

> It's difficult to imagine a situation in which this would be true. Japan.

All the data I can find points to their long-term prime rate sitting at ~1.1%. Yeah, that's low, but it's also pretty clearly non-zero.
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