Capitalism, Unicorns and SoftBank. The End? The Beginning?


This post is by Keith Teare from Stories by Keith Teare on Medium

Venture Trends Newsletter, Issue #19

Beware mega-unicorn paper valuations


This post is by Alex Wilhelm from Fundings & Exits – TechCrunch

Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.

There’s a famous old post going around Twitter this week by entrepreneur and developer David Heinemeier Hansson (@DHH). DHH is a critic of certain elements of the startup world, especially wild valuations. This entry from him is, in my view, a classic of the genre.

The post in question is titled “Facebook is not worth $33,000,000,000,” and was written back in 2010.

You can already imagine who might find the post irksome — namely folks who are in the business of putting capital into high-growth companies. This sort of snark, though not precisely recent, is a good example of how posts like the Facebook entry are read on Twitter.

If you take a moment to actually read DHH’s blog, however, you’ll find that the first part of his argument is that selling a minute slice of a company at a high price, thus “revaluing” the company at a new, stratospheric valuation, is a little silly. DHH didn’t like that by selling a few percentage points of itself, Facebook’s worth was pegged at $33 billion. We’ve seen some similarly-small-dollar, high-valuation rounds recently that could be scooted into the same bucket.

It’s a somewhat fair point.

But what struck me this morning while re-reading the DHH piece was that his second two points are useful rubrics for framing the modern, post-unicorn era. DHH wrote that profits matter, companies are ultimately valued on them, and that companies that don’t scale financial results as they add customers (or users) aren’t great.

Unicornonsense


This post is curated by Keith Teare. It was written by Om Malik. The original is [linked here]

Softbank Investor Deck

Sometimes when we find ourselves on the third base, we think we hit a triple. It doesn’t matter if we got there by series of luck of the draw. I mean a botched throw that turned a single into a triple. Or a passed ball that helped with a stolen base or two. The point is that sometimes being successful is a series of unseen random events. However, that is a good reason for many to assume that they are the smartest guys in the room. Enron folks, often thought they were. Except, when they weren’t. They just were just self-dealing.

Fast forward to today, and we have the problems faced by Softbank and its founder-CEO Masayoshi Son, and his game-changing $100 Billion Vision Fund? The company reported some staggering losses, thanks to investments that had a whiff of self-dealing. Keep buying WeWork or Oyo at higher prices, even if others won’t? Why, because you think you are the smartest guys in the room, and you have the best data.

Except, you don’t. The same company that was once worth $47 billion — why, no one knows — is now worth $2.9 billion. This is less than the cash Softbank invested in WeWork. Bloomberg reported:

The drop in Uber’s share price was responsible for about $5.2 billion of Vision Fund’s losses in the period, while WeWork contributed $4.6 billion and another $7.5 billion came from the rest of the portfolio, SoftBank said. The $75 billion the Vision Fund has spent to invest in 88 companies as of March 31 is now worth $69.6 billion.

Who knows how many other such disasters are ahead of the fund and its leader, who (according to FT) had no qualms in comparing himself to the son of god and the Beatles.

“Our unicorns have fallen into this sudden coronavirus ravine,” Son told his investors. “But some of them will use this crisis to grow wings,” Son said on the investor call.

What is that saying about wishes, horses, and beggars? [PS: I don’t know who is running Softbank PR, but if we had the old Business 2.0, we would have Son’s comments and that visual from the investor presentation at the very top of the 101 Dumbest Things of 2020.)

And that brings me to the reason I really started to write this piece — unicorns: and what a bunch of baloney they are. I bristle at the idea that technology companies are happy to label themselves as a mythical creature and does not exist. Time and again, the faulty valuations and lofty expectations prove that.

Whether it was Square, Snapchat, Box, Pinterest, Uber, or WeWork — the label matters zilch when it comes to the real world and real markets. Private markets are notorious for getting the valuations wrong — both on the upside and the downside. You either have good companies, or you have terrible companies. Labels don’t matter.

I hope the pandemic snuff the life out of this unicorn meme that has dominated every aspect of Silicon Valley narrative over the past seven years.

No more unicornonsense!

May 19, 2020. San Francisco.

Near Future

If you pay enough attention, you can see the future. You can learn, adapt, and be ready for a world reshaped by science and technology. My (almost) weekly newsletter is focused on the future — the Near Future, to be precise. (read more)

Unicornonsense


This post is by Om Malik from On my Om

Softbank Investor Deck

Sometimes when we find ourselves on the third base, we think we hit a triple. It doesn’t matter if we got there by series of luck of the draw. I mean a botched throw that turned a single into a triple. Or a passed ball that helped with a stolen base or two. The point is that sometimes being successful is a series of unseen random events. However, that is a good reason for many to assume that they are the smartest guys in the room. Enron folks, often thought they were. Except, when they weren’t. They just were just self-dealing.

Fast forward to today, and we have the problems faced by Softbank and its founder-CEO Masayoshi Son, and his game-changing $100 Billion Vision Fund? The company reported some staggering losses, thanks to investments that had a whiff of self-dealing. Keep buying WeWork or Oyo at higher prices, even if others won’t? Why, because you think you are the smartest guys in the room, and you have the best data.

Except, you don’t. The same company that was once worth $47 billion — why, no one knows — is now worth $2.9 billion. This is less than the cash Softbank invested in the fund. Bloomberg reported:

The drop in Uber’s share price was responsible for about $5.2 billion of Vision Fund’s losses in the period, while WeWork contributed $4.6 billion and another $7.5 billion came from the rest of the portfolio, SoftBank said. The $75 billion the Vision Fund has spent to invest in 88 companies as of March 31 is now worth $69.6 billion.

Who knows how many other such disasters are ahead of the fund and its leader, who (according to FT) had no qualms in comparing himself to the son of god and the Beatles.

“Our unicorns have fallen into this sudden coronavirus ravine,” Son told his investors. “But some of them will use this crisis to grow wings,” Son said on the investor call.

What is that saying about wishes, horses, and beggars? [PS: I don’t know who is running Softbank PR, but if we had the old Business 2.0, we would have Son’s comments and that visual from the investor presentation at the very top of the 101 Dumbest Things of 2020.)

And that brings me to the reason I really started to write this piece — unicorns: and what a bunch of baloney they are. I bristle at the idea that technology companies are happy to label themselves as a mythical creature and does not exist. Time and again, the faulty valuations and lofty expectations prove that.

Whether it was Square, Snapchat, Box, Pinterest, Uber, or WeWork — the label matters zilch when it comes to the real world and real markets. Private markets are notorious for getting the valuations wrong — both on the upside and the downside. You either have good companies, or you have terrible companies. Labels don’t matter.

I hope the pandemic snuff the life out of this unicorn meme that has dominated every aspect of Silicon Valley narrative over the past seven years.

No more unicornonsense!

May 19, 2020. San Francisco.

The great unicorn retreat


This post is by Alex Wilhelm from Fundings & Exits – TechCrunch

Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.

Today we’re taking stock of what’s happening to a number of unicorns, both public and private. This is the third time we’ve sat down to document what feels like a wave of unicorn cuts, capped in this case by Airbnb’s decision to cut around a quarter of its global staff (25.3%, according to provided numbers).

Airbnb’s cuts follow recent excisions at Lime, Oyo, and others. Notably the cuts are not only landing amongst the best-known unicorns. Indeed, Crunchbase News (n.b. I was once its Editor in Chief) wrote a few weeks back that 36 unicorns had cut a known 8,416 jobs, according to a layoff tracker.

The numbers are now sharply higher if we only added in Airbnb’s cuts. However, looking at the same database this morning, cuts amongst late-stage startups since the prior count was assembled include reductions at Swiggy, Deliveroo, Sisense, Magic Leap, DesktopMetal, Cohesity, and others.

TechCrunch first covered a wave of unicorn layoffs towards the start of the year, when companies backed by SoftBank’s Vision Fund were rapidly trying to curtail their costs and move closer to profitability. Suddenly their chief-backer, formerly the most aggressive pool of private capital in the world was on retreat, and it was time to batten the hatches.

Those cuts, however, felt less driven by a unicorn-wide issue and more led by quarters of overly indulgent self-aggrandizement by a number of business that ran further in the red than made sense.

The second wave of unicorn layoffs came in the early days of the COVID-19 pandemic. Well-known companies like Bird, ZipRecruiter, GetAround, Sonder, TripActions, and others cut staff as the economy rapidly changed as cities and states asked regular folks to stay home.

That post, out towards the end of March, almost looks like we published it too early in retrospect. It came before Toast dramatically cut staff or BounceX’s own layoffs. In other words, the trend we were discussing was just getting started.

So let’s talk about what’s happened since our March 30 check-in on the state of unicorn employment, and why we’re now in what could be the third wave of unicorn cuts this year.

$100M rounds are down but not out in 2020


This post is by Alex Wilhelm from Fundings & Exits – TechCrunch

Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.

This morning we’re taking a look at mega-rounds: funding events of $100 million or more.

What’s fun about these rounds is that they experience less temporal lag than other venture financings. Generally speaking, the larger a venture round is, the faster it becomes public knowledge. This is why seed rounds are the laggiest of all startup rounds and as you progress up the Series ladder (from A to B to C to D), the rounds that you hear about are increasingly fresh.

If we wanted to take a look at 2020’s largest rounds to date, for example, instead of staring at an incomplete picture that might tell us nothing at all, we could get a reasonable handle on what’s going on in the very late-stages of private equity financings.

This morning we’re looking at $100 million and greater rounds from January, February and March (through the 23rd) for both 2019 and 2020. As you will see, the data shows us that the late-stage private market for startup investments is in better health than we might have expected. This is true despite spotting weaknesses in other parts of the global venture scene (China venture data remains very weak, for example).

The unicorn era, for better or for worse, appears to be still standing for now, despite the chaos that surrounds it.

$100 million or bust

As Uber and Lyft continue to melt, the 2019 unicorn class loses its shine


This post is by Alex Wilhelm from Fundings & Exits – TechCrunch

You’d be excused for feeling that mid-2019 was in a different decade as far as venture-backed IPOs go.

Last year saw a number of successful flotations of venture-backed technology and technology-enabled companies, and most performed well after they began trading. But despite some early success, a number of the most famous 2019 IPOs have seen their valuations decline rapidly in ensuing quarters.

In some cases, once richly valued public unicorns are off more than twice the market’s recent declines, have given up all their gains earned as public companies, or fallen under their final private market valuations. It’s a stunning reversal for several of the most-lauded companies to come out of the venture capital machine in a decade.

Have hundreds of unicorns missed their exit window as Q1 IPOs grind to a halt?


This post is curated by Keith Teare. It was written by Alex Wilhelm. The original is [linked here]

Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.

As investors struggle to price the stock market as economic and political news continues to break, the private market is entering a rough period. It seems increasingly likely that the period of disruption due to COVID-19 will persist for months, if not quarters. That means missed Q1 and Q2 revenue growth, bookings, and the like from startups domestically and around the world.

And that’s the bullish case. For some cohorts of startups, the outlook is even worse. Think about travel startups, ride-hailing upstarts, and any grouping of private companies that pursued a high-burn, high-growth model; that final category is about to run into the twin issues of the inflexibility of cost structure and the impact of slowing sales. That alone would make fundraising more difficult; toss in a deflating stock market and possible recession, and the mixture is a downright mess.

But we owe it to ourselves to survey what is going on in an attempt to answer our own questions about IPOs, exits, unicorn tallies, and who might be in trouble. Unlike when things were less bad, there will be no laughing this morning and no jokes. Just notes on what’s going wrong and what it might mean for private companies.

Have hundreds of unicorns missed their exit window as Q1 IPOs grind to a halt?


This post is by Alex Wilhelm from Fundings & Exits – TechCrunch

Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.

As investors struggle to price the stock market as economic and political news continues to break, the private market is entering a rough period. It seems increasingly likely that the period of disruption due to COVID-19 will persist for months, if not quarters. That means missed Q1 and Q2 revenue growth, bookings, and the like from startups domestically and around the world.

And that’s the bullish case. For some cohorts of startups, the outlook is even worse. Think about travel startups, ride-hailing upstarts, and any grouping of private companies that pursued a high-burn, high-growth model; that final category is about to run into the twin issues of the inflexibility of cost structure and the impact of slowing sales. That alone would make fundraising more difficult; toss in a deflating stock market and possible recession, and the mixture is a downright mess.

But we owe it to ourselves to survey what is going on in an attempt to answer our own questions about IPOs, exits, unicorn tallies, and who might be in trouble. Unlike when things were less bad, there will be no laughing this morning and no jokes. Just notes on what’s going wrong and what it might mean for private companies.

Maybe y’all should have gone public in Q4


This post is by Alex Wilhelm from Fundings & Exits – TechCrunch

That’s it, that’s the whole post.

Casper’s IPO could be a bellwether for unprofitable startups in the post-WeWork era

Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.

Today we’re working to figure something out, namely the tradeoffs that D2C unicorn (and soon to be public company) Casper faces as it seeks to balance growth and profitability. And then we’re going to stack it next to its most obvious public comp, Purple, to figure out what it might be worth.

This is going to be a little more wonky than usual, but I can’t help myself. Let’s go.

Profit v. Growth

Every growing company faces a tradeoff in growth and profitability. The faster a company grows, generally speaking, the lower its profitability. In reverse, companies that grow more slowly can focus on wringing profits from existing operations. Companies that grow quickly while generating profit are rare (the Zooms of the world).

The tension between

Continue reading Casper’s IPO could be a bellwether for unprofitable startups in the post-WeWork era

After IPOs and acquisitions, a look at Utah’s biggest venture rounds of 2019

Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.

This morning we’re dialing into some late-stage venture activity in Utah. Why? Because Utah has become a hotbed of startup activity, yielding both IPOs and huge acquisitions. And as Utah isn’t a media hub in the way that San Francisco and New York City are, it’s often a bit undercovered.

So what better place to cast our eye?

Today we’re going to look at the seven largest venture rounds in the state that have been recorded by Crunchbase in 2019 (no post-IPO action, no grants, no secondaries, no debt, no private equity). We’ll quickly explain each company, look at its investor list, and then ask ourselves how soon we think the company might go public.

Ready?

Countdown

Exploring our seven largest rounds, let’s start from the smallest of the cohort

Continue reading After IPOs and acquisitions, a look at Utah’s biggest venture rounds of 2019

Public investors loved SaaS stocks in 2019, and startups should be thankful

Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.

Today, something short. Continuing our loose collection of looks back of the past year, it’s worth remembering two related facts. First, that this time last year SaaS stocks were getting beat up. And, second, that in the ensuing year they’ve risen mightily.

If you are in a hurry, the gist of our point is that the recovery in value of SaaS stocks probably made a number of 2019 IPOs possible. And, given that SaaS shares have recovered well as a group, that the 2020 IPO season should be active as all heck, provided that things don’t change.

Let’s not forget how slack the public markets were a year ago for a startup category vital to venture capital returns.

Last year

We’re depending on Bessemer’s cloud index today, renamed the “BVP

Continue reading Public investors loved SaaS stocks in 2019, and startups should be thankful

Slack’s worth about 18x revenue, and there’s nothing wrong with that

One odd thing in 2019 has been Slack’s falling share price contrasted against the rising value of the Nasdaq composite, a tech-heavy index that many use as shorthand for the US tech market. Why one of tech’s hottest, and fastest-growing companies was losing altitude while tech stocks themselves broadly rose has been interesting to unpack.

Whether it was software-as-a-service’s (SaaS) modest repricing from summer highs, Microsoft’s Teams push, or Slack’s initial value just being too high, what the workplace productivity company is really worth has been an open question since it began to trade earlier this year; what became plain as the year went along, however, was that its initial trading range (above $40) and direct listing reference price ($26) were far too high, and a little too high, respectively.

But as the year comes to a close Slack has found a trading range that it likes

Continue reading Slack’s worth about 18x revenue, and there’s nothing wrong with that

Tech startups going public raise 3x more today than in 2015

Hello and welcome back to our regular morning look at private companies, public markets and the grey space in between.

Today we’re exploring the 2019 IPO cohort from a capital-in perspective. How much did tech companies going public in 2019 raise before they went public, and what impact that did that have on their valuation when they debuted?

Looking ahead, the tech startups and other venture-backed companies expected to go public in 2020 will include a similar mix of mid-sized offerings, unicorn debuts and perhaps a huge direct listing. What we’ve seen in 2019 should be a good prelude to the 2020 IPO market.

With that in mind, let’s examine how much money tech companies that went public this year raised before their IPO. Spoiler: It’s a lot more than was normal just a few years ago. Afterwards, I have a question regarding what to call companies in the

Continue reading Tech startups going public raise 3x more today than in 2015

Unicorn Analysis: Understanding the Herd

Unicorn companies, those valued at over $1B, have experienced significant change over the last few months. Many have IPOed like Cloudflare (up 12%), Crowdstrike (up 92%), and Datadog (up 33%) while others are going through valuation readjustments. Below are 5 data points on the current U.S. unicorn herd.

  1. There are 192 U.S.-based unicorns, with enterprise businesses representing 43% of the companies.

2. While there are more enterprise companies, consumer businesses represent more enterprise value. In turn, the average consumer startup is valued higher ($3.7B) than the average enterprise startup ($2.5B).

3. There are 7 unicorns with open source business models, only ~9% of enterprise unicorns. 6 of the 7 startups operated at the infrastructure / developer layers of the stack, while Automattic (WordPress) was the only application layer open source project. We believe open source business models will continue to gain share over closed-source companies.

4. There

Continue reading Unicorn Analysis: Understanding the Herd

Software Moats with Astasia Myers

Last week I was honored to be on The Software Engineering Daily discussing economic moats for enterprise companies. We also dug into to some case studies of competitive markets including cloud cost optimization, observability, and CI/CD. You can find the episode here. Since not everyone has time to listen to an entire podcast, I wanted to pull-out some key takeaways that may be helpful for entrepreneurs.

What’s a moat?

An economic moat is a business’s ability to maintain its competitive advantage over its competitors. It’s really based off of the idea of a medieval fortress. You have a fortress that is in the business, and the moat that keeps the competitors out. Raising barriers that make it harder for them to overtake you, and it’s mostly considered a defensive measure for the company.

The fortress, the company, should generate the latter, the economic moat. It’s important to set out at the beginning

Continue reading Software Moats with Astasia Myers

Summer’s over so let’s WeWork

I am not much for summer vacation, but occasionally I do like to take a couple of days to tune out my work life. All the travel and meetings of my trip made it difficult for me to sit down and write a coherent piece for this week’s newsletter. So rather than begin this week’s newsletter with the usual essay, I will just offer up the following observation. Continue reading Summer’s over so let’s WeWork

Why the IPO market for consumer startups is stronger than ever, and will it continue?


This post is by Eric Feng from Stories by Eric Feng on Medium

“You go celebrate one day, and that’s it.”

5 stories I recommend that are worth reading

  1. Three Mushers, one blizzard, and the world’s hardest dog sled race. No, this is not about Iditarod, but about the 1,000-mile long Yukon Quest. Great and fun read from Deadspin.
  2. Ofo-oh! China’s unicorns built up and ruined China’s bicycle manufacturing hub. The bust is impacting small businesses and upending individuals’ lives. This is good reporting from The New York Times on the downside of unicorn madness. It is chock full of surprising details — for example: “Last year, China minted a new unicorn roughly every four days.”
  3. How did wool lose its itch? Read on to find the answer.
  4. The wonderful history of The Bowery, a famous street and neighborhood in New York. I used to live around the corner from it, and now I can’t recognize it. I was so happy to read The Wild East.
  5. Here is a very sobering piece about how going hungry affects kids for Continue reading 5 stories I recommend that are worth reading