There Are Now 1,000 Unicorn Startups Worth $1 Billion or More (bloomberg.com) 35
Almost a decade after the term "unicorn" was coined to describe a rare breed of private company, about two new companies are joining the herd daily. From a report: The term unicorn emerged almost a decade ago, a time when startups worth $1 billion were rare and treasured, something only the luckiest of founders and investors would ever glimpse with their own eyes. Now the production of unicorns is reaching the scale of industrial agriculture. Productboard [an anecdote in the story] was particularly notable in one way, though: It became the 1,000th unicorn, marking the first time the herd has crossed into four digits, according to startup-tracking service CB Insights. That same week, six other companies became unicorns. On the day of Productboard's internal announcement, Dune Analytics, a Norwegian crypto analytics startup, gained its horn by raising a cheeky $69,420,000. In January, 42 startups became unicorns and four became "decacorns" -- the clumsy nickname given to startups worth $10 billion or more. "When you have 1,000 unicorns," says Brian Lee, who oversees research at CB Insights, "that's almost an oxymoron."
It's hard not to see the number of billion-dollar startups as proof that the private markets are overheated -- something people have been saying for years. Even in the face of volatile public markets, inflation, and rising interest rates, the mood among private market investors appears to be as ebullient as ever. Some of that undaunted growth is valid, says Lee: As more of the world's services become digital, software companies become more valuable, and infrastructure such as Amazon Web Services makes it easier than ever to start a tech business. In the past, companies the size of the most valuable unicorns -- ByteDance, SpaceX, and Stripe -- would probably have already gone public. Today entrepreneurs feel less pressure to do so, given how easy it is for them to raise the money they need from private funders. Staying private allows many companies to avoid the additional scrutiny and potential loss of control that comes with an initial public offering. Plenty of investors are eager to get in early on rapidly evolving industries such as crypto, pushing up valuations. "You can't discount the power of FOMO," Lee says. "People are willing to go in with more capital."
It's hard not to see the number of billion-dollar startups as proof that the private markets are overheated -- something people have been saying for years. Even in the face of volatile public markets, inflation, and rising interest rates, the mood among private market investors appears to be as ebullient as ever. Some of that undaunted growth is valid, says Lee: As more of the world's services become digital, software companies become more valuable, and infrastructure such as Amazon Web Services makes it easier than ever to start a tech business. In the past, companies the size of the most valuable unicorns -- ByteDance, SpaceX, and Stripe -- would probably have already gone public. Today entrepreneurs feel less pressure to do so, given how easy it is for them to raise the money they need from private funders. Staying private allows many companies to avoid the additional scrutiny and potential loss of control that comes with an initial public offering. Plenty of investors are eager to get in early on rapidly evolving industries such as crypto, pushing up valuations. "You can't discount the power of FOMO," Lee says. "People are willing to go in with more capital."
I wonder how many will be around (Score:2)
in 5 years, or i 10 years.
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They'll have merged or consolidated into 100 mega-unicorns owned by bloated corporations and bogged down with their outdated internal processes and a toxic corporate culture.
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Ooh, then they can pull an AT&T - buy Yahoo and rename themselves Yahoo.
Re: I wonder how many will be around (Score:1)
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The iPhone was announced almost exactly 15 years ago and generated a huge amount of hype. A lot of people wanted one.
That depends... (Score:2)
...on the price of copper. [youtube.com]
Re: I wonder how many will be around (Score:1)
Re: I wonder how many will be around (Score:1)
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Probably not many.
And a whole bunch of these failing out at once could do some stupid things to the market if it triggers a panic.
A trillion+ on shitty dot coms, at a period when covid is still a mutation away from shutting the world down all over again is how we crashed the economy in the late 90s. And we havent learned a goddam thing since.
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In America we have rather generous bankruptcy laws, low tax for companies, and a lot of other stuff that often makes us go, those damn 1% are stealing everything from the rest of the 99% of us, as well with a good part of the world looking at the US like we have gone crazy with unbridal capitalism.
For good or for ill, America in general is very tolerant for people taking big risks, even for a small chance for a large reward. This does create a lot of garbage companies out there, as well a lot of Fad compan
Moving on up (Score:2)
Seems fine. (Score:2)
I assume that it's excellent news that the ongoing growth in the popularity of preserving greater information asymmetry and avoiding this mechanism is definitely a good thing, right?
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Capital markets are quite efficient at distributing money in a free market economy in principle. In the basics of econ, they teach that in principle eventually this happens and a market reaches equilibrium. In practice, markets never reach equilibrium; they're always striving towards equilibrium,
Yeah (Score:2)
In the startup world, if you're not a unicorn are you really even trying?
Just one question... (Score:4, Insightful)
How many of these unicorns are profitable?
Re:Just one question... (Score:5, Funny)
How many of these unicorns are profitable?
They'll make it up in volume.
How many horns is that? (Score:4, Insightful)
Or better yet, how many horns does it take to burst a bubble and wipe out a trillion plus dollars?
Stale arbitrage (Score:1)
Follow the money to understand it (Score:5, Informative)
Venture capitalist - I've posted about this before but I'll do it again here. A VC makes money on the 2-and-20 model; they collect a 2 percent of the funds raised per year as a management fee, and they keep 20 percent of any gains in their investments. So, Fund ABC has 3 partners and 3-4 staff and an office. They raise $200M from institutional investors like pension funds, banks in some rare cases, family offices (extremely wealthy people), etc. It's a 7 year fund (meaning the fund must distribute all gains back to investors). We keep 4M per year (2 percent of 200M), meaning we have 172M to invest. I invest that 172M in startups, and maybe between losses and gains I make back $400M. I pay back the investors their 200M, and there's 200M of total gain. The 20 percent carry kicks in; we give the investors $160M on top of their $200 and we keep $40M to split amongst the 3 of us, or about $13.3M to me. Short term though, I have 3 staff, let's say I pay them a healthy 200k/yr, and I spend 50k/month on an extravagant office, or 600k per year. The fund operating cost is 1.2M, so my 3 partners and I split $2.8M per year, or 930k/yr for 7 years. So me personally, I made 930k/yr times 7 years, or $6.5M, PLUS $13.3M at the end, that may or may not happen because startups are hard to gauge if they're successful or not.
But, to me as a person, that $930k per year is guaranteed. That's a lot! So, I call my friend and help my startup with a good story that may have warts in it's operating margin, and I have him invest raising the value of the company. he calls his friend and calls it a unicorn. I'm only 2-3 years into my fund, but now i can claim "I found X Company when they were small! Look at the returns (paper returns, not liquid). I'm a genius!" And I raise my next fund. My track record now allows me to raise a $500M fund. I'm using the same 3 staff and 3 partners, so my operating cost is still $1.2M, BUT now I'm getting 2% of the $200M fund AND 2 percent of the 500M fund; my management fee has gone from 4M per year to 14M per year. After expenses, my split with my 3 partners is $14M-1.2M, or 12.8M split three ways; my annual take home went from 930k to 4.27M per year. Screw the carry, I need to engineer another few unicorns to solidify my reputation as a VC oracle so I can raise a $1 BILLION fund and get even BIGGER management fees.
Investors that are a pension fund or other big money manager - The market ended up. I'm required by my operating charter to set aside 1 percent of my assets under management into high risk/high return investments, which I usually do by giving to VCs. Since the market ended high, making my public assets higher in value, by comparison my high risk/high return money is only .6 percent. So I sell public investments and shift it to the HR/HR category, and give it to VCs. Hey, this guy picked that unicorn? I bet he can do it again and I need to allocate this money, let's give him double. If he fails, it won't be a huge impact on my pensioners (I'm still in 30 percent treasuries and 30 percent Blue chips), but i can't go wrong by betting on the VC Oracle so I'll keep my fat management fees coming.
Investor that is a high net worth individuals or entities - The market ended up. But stocks feel inflated, mostly because stupid Congress dumped tons of stimulus money. I've made some good gains, maybe it's time to park it. Let's get out of the stock market. Where to put it? Bonds? No, interest rates are low and the Fed will likely increase to eat away at inflation. Keep in cash? Ugh, inflation is over 6 percent; not good. Real estate? Man the market is hot because everyone is parking money there; it's kind of expensive. Private companies; they don't change value much so if there's a recession they'll likely stay the same value. That keeps my net worth high giving me access
Re:Follow the money to understand it (Score:5, Insightful)
That looks a lot like this, but it's not. The problem here is it's about Management Fees and the very large financial difference, and thus interests, of individuals acting as VCs while benefiting from the scale that institutional money can deploy. 2-and-20 worked when you were investing high net worth assets; a $100M fund means the partners take home about $200k/year; healthy, but not wealth creation money; a VC would become very wealthy only if their investments were good. But a $1B fund means the partners might take home $5-8M/year and that's guaranteed regardless of investment outcomes. Which means the incentive of VCs has changed to hype the stories of their underlying companies to secure larger funds and generate big management fees; if the companies then collapse spectacularly, then sure I didn't earn my carry, but I did earn millions per year guaranteed; life changing money. So now, the more a VC hypes a company they invested in, the more they appear to know what they're doing. That appearance and reputation allows them to raise a bigger fund and generate more management fees. The incentive model for VCs has changed to maximizing management fees over picking good companies that can truly go the distance.
Here's the thing too. I'm an investor. My VC of choice picked a company and I invested at $.50/share. Through successive rounds, the company goes SPAC at $10/share. The company is garbage, the SPAC goes down to $2.50/share. I STILL MADE MONEY. Not as much as I thought, but more than what I gave the VC. it's the last private investor that invested at say $3 or $4/share that took a loss, and the SPAC backers too. Cool, I'll give that VC money on the next fund.
See how it works?
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Their numbers are not what make them unicorns (Score:4, Interesting)
What makes them unicorns is that they make a profit. The number of $1B start-ups that make a profit is still approximately zero. That's why they're "unicorns".
Once interest rates get back to 3, 4, or 5% they will drop like flies.
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There is a direct correlation between the growth of the public markets and the growth of venture investing. The money VCs invest comes from institutional money managers, people who manage pension funds and other big money management funds. Those institutions are required to put some percent of their money into high-risk, high return assets; if a pension fund is in 30% treasuries, which are safe, then putting 1% in risky startups is low ch
What all my life wanted to know... (Score:5, Funny)
A pack of dogs, a pride of lions, and now I know it's an oxymoron of unicorns.
valuations and BS (Score:3)
Oh yeah? Go ahead and try to sell them and see how much cash you come back with - that number is the real value of these companies. I don't care what the VCs think their investments are worth, they are only worth what someone else will pay for them.
One of the unpleasant side effects (Score:3)
That sounds good, until you realize they're all Too Big To Fail, so they're not risking their money, they're risking your money.
Because if the shit hits the fan you and I will be on the hook to pay it, and we'll be paying for it without jobs, since when these yahoos crash the economy (every 10 years by my count) they do mass layoffs to boost their stock prices and make anyone they don't fire put in 60+ hour weeks.
Bubble (Score:2)
Every one of those companies are going to disappear in a puff of smoke, taking all that money with them, as soon as interest rates cross 1%.
Corporate valuations undergo inflation too (Score:2)
It should follow that even the smallest companies would be worth more than the smallest companies 20 years ago.
Crypto (Score:1)