Quite a while back, say around the middle of 2015, I started thinking “this unicorn craze, along with the euphoria over the ‘sharing / gig’ economy, has disaster written all over it ….“
Back then, however, there were very (very, very) few people who shared that view. I remember, in particular, one very articulate and thoughtful young fellow who disagreed violently with my analysis and predictions, assuring me that the old (fart) models of earnings and free cash flow had been replaced by the disruptive, “run-ahead-of-the-pack and scale” model of which so many VCs had become so fond. For a few weeks there we had fun, going back and forth, exhorting one another to come to our respective senses and accept reality, with each of us, of course, having our own, very different view of what that might be.Our heated debate ended, quite suddenly, when the young man decided he’d had enough of my tomfoolery.
Anyway, to the point. After pretty much ignoring the comings and goings of the unicorn community since the “uber-bomb” imploded, I was gratified today to see an article on the online website, Oxford’s “The Morning Report”, summing up, quite nicely, a lot of my current thinking on the subject.
First, I loved the headline “Is Silicon Valley’s Business Model At Risk?” (God, I hope so!), but the article does more than just startle, going on to describe the current state of affairs in that former garden vegetable paradise. However, rather than just blab on about what’s in the article, I thought I’d share huge chunks of the article with you so that you can see for yourselves ….
So, here goes:
“All of a sudden, Wall Street cares whether a company is making money, and Silicon Valley’s business model is at risk: “This was supposed to be the year when America’s biggest startups would finally make their triumphant debut on the stock market. Billionaire Silicon Valley investors, sneaker-clad founders and button-down bankers all expected enormous stock sales to turn companies like Uber, Lyft and WeWork into a new generation of corporate giants. It hasn’t quite turned out that way. Last week, WeWork postponed its planned initial public offering. Uber and Lyft sold shares earlier this year only to see their prices collapse. Investors took a look and backed away, seeing overpriced companies with no prospect of making money any time soon, in some cases led by untested executives. On Thursday, Peloton joined the list with a disappointing first day of trading.”
But there’s more (so much more) …..
“The rejection threatens Silicon Valley’s favored approach to building companies. The formula relies on gobs of money from venture capitalists to paper over losses with the expectation that Wall Street investors will eventually buy shares and make everybody rich. If mutual funds and pension funds are no longer willing to buy once the companies go public, fledgling companies are unlikely to find funding in the first place.”
And then there’s this:
“Meanwhile, WeWork has put its private jet up for sale: “WeWork parent We Co. is selling the $60 million Gulfstream G650 that the company bought last year for Neumann to use for travel and meetings, according to a person familiar with the matter, who asked not to be identified because the plans are private. …WeWork is also planning to sell three businesses acquired in recent years: event organizing platform Meetup, office management startup Managed by Q and marketing company Conductor, according to the person. There is interest already in buying Conductor, the person added. In addition to the potential sales, WeWork may also turn to job cuts, which one person familiar with the matter said could number in the thousands for a staff of more than 12,000. WeWork declined to comment for this story.”
And, finally, this:
“And some of the startups that sold to We for stock are now worried they got nothing for their companies: “We has acquired 15 venture-backed startups since 2014, according to VentureSource. That is on par with the number of acquisitions made by public companies such as Twitter Inc. and International Business Machines Corp. during that period. We’s acquisitions over that time exceed the nine startups bought by Airbnb Inc., the second most active among private venture-backed acquirers, the data show. ‘For a lot of these acquisitions, the shareholders and founders that got stock as a big part of the consideration are definitely not happy,’ said Ben Sun, general partner at Primary Venture Partners.””
Of course, none of this fazes me since I’ve believed (ever since the time I spent in Silicon Valley toward the end of the dot-com era) that venture capital has never been anything more than a “shell” game, a socially-accepted “pump and dump” scheme by most of the players, including both the VCs themselves and those founders with a fondness for luxurious offices, fast, expensive cars and beautiful women.
In one way or another, the ultimate “sucker” has always been the naive, investing general public. Only when its stock is safely in the hands of the retail investor does the unicorn finally reveal itself to be nothing more than a jackass in disguise.
Thus, we’ve finally arrived at the place where I feel I can safely say, without a hint of embarrassment or the need to be defensive, I told you so ….
