
Unicorns Seemingly Reach a Tipping Point - adidash
http://techcrunch.com/2016/02/10/doomed-i-corns-unicorns-seemingly-reach-a-tipping-point/
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gregdoesit
I work at a unicorn company... that is technically not a unicorn, and not
listed on most of the unicorn lists. For most of these lists the companies
considered unicorns are ones that have a valuation of over $1B and it took
less then 10 years for the company to get there.

The company I work at took... 11 years to get to this valuation, so it's not
on the list. It took this long because there were very few investment rounds,
as the company has been profitable from year 3 onwards.

I am pretty amused at how it's only the valuation that counts to be a unicorn
- for example there are some companies who took $300M in investment, are
burning really heavy cash, and have the $1B valuation since the last, $200M
round. The media covers these companies much more extensively then they have
ever covered us, or similar companies who are doing well and just don't take
further investment. Just looknig at the financial structure, cash flow and
market saturation, there are good unicorns, bad unicors and then the ones in
between.

Before joining any company, unicorn or not, just do your due diligence. All
companies will tell you how insanely much the options will be worth assuming
the 50% annual growth the next 5 years, and winning big in the market. But a
share or option is only a promise, and it's only as good as the company, the
team, the founders - and the economy.

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eru
Perhaps the cash burners burn more on PR to get into the news?

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devanti
no it's because they don't make enough revenue

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hemancuso
I'd be curious to know what percentage of founders are taking money off the
table during these rounds. For as many of these articles that I read I don't
see much about that. De-risking their personal stake by 3-10M could be a
motivating force in these high valuation rounds but I don't see evidence
either way. Because on its face these unicorn rounds seem to increase risk
rather than reduce it in a few dimensions.

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downandout
It's exceedingly rare for founders to be allowed to take money off the table
during these large rounds. According to leaked emails from Sony, investors
balked when Evan Spiegel of Snapchat tried to unload $40M in personal shares -
just after he had turned down a $3B offer from Facebook. The founder of Twitch
wanted to take some money off the table at a ~$200M valuation nine months
before it was sold to Amazon for $970M, and he was also rejected [1]. If they
aren't giving cash to founders of companies like Snapchat and Twitch, there
likely aren't a whole lot of other people that are getting it either.

[1] [http://justinkan.com/the-99-percent](http://justinkan.com/the-99-percent)

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rdlecler1
I think sama mentioned that it's now more common for founder to take some
money off the table starting at their B round. It makes sense, you don't that
the entrepreneur focused on their money problems. A little financial can go a
long way with your family.

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sbardle
The unicorn phenomenon is the result of hot money looking for any kind of
return in a zombified financial system. Tech has had a good run the last ten
years but things like QE have contributed to turning the sector into something
of an asset bubble. But will it be allowed to burst? I'm not so sure. The
central banks now have a vested interest in keeping these bubbles (whether in
real estate or stocks) going for as long as possible. A few more rounds of QE
and Twitter and LinkedIn might be back up in the clouds again.

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nostrademons
Tech is small potatoes in the global financial system, and the losers in a
unicorn bubble burst are a small set of private investors. I doubt there will
be any bailout for tech, nor will there be any major hangover like the dot-com
bust. Rather, a few entrepreneurs and investors who made bad bets will exit
the market, and their places will be taken by new entrepreneurs and investors
who were more prudent. Capitalism at its finest.

If we're predicting upcoming bailouts from this crash, I would bet on U.S. oil
companies and everything big in China. China could potentially cause a massive
earthquake in international trade.

The student-loan bubble is also a massive debt overhang that could cause huge
repercussions, but I don't see a trigger that would cause it to burst.

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sbardle
Tech is a big part of the US stock market (significantly bigger than it was
before the financial crisis began). The question is: would the unicorn bubble
bursting then contribute to a loss in faith in tech in general by investors, a
NASDAQ collapse and a haircut for the likes of Apple and FB? We could well be
on our way to QE to infinity and beyond. House prices in parts of the UK are
17 times salary now (against a historic average of 4 or 5), which all comes
down to central bank policies over the last 20 years. The new (ab)normal might
be here to stay, although I'd take a punt on alternative currencies in the
meantime.

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gaius
These unicorns are not really tech companies tho'. What tech do they sell?
They are ad companies or regulatory arbitrage plays, with an app and a
website, that's all.

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rhizome
It's the app and the website that make them tech companies.

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gaius
Then every company is a tech company. You know Pizza Hut has an app now?

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rhizome
Did they develop it themselves, or did a tech company make it for them?

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gexla
Unicorn tipping. Like cow tipping, but way more challenging.

Jumping into the article...

> the media has been almost singularly obsessed with companies valued at north
> of a billion dollars

Wow, Techcrunch. That's the pot calling the kettle black. Don't you think?

Markets create zig-zaggy lines. Media will be there to report on every zig-
zag. We'll waste our time reading these articles thinking they are important.

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gue5t
It seems obvious that tricorns are a much more stable design.

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jtolmar
Who puts hats in a stable?

At least with unicorns it makes sense.

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Ftuuky
I don't know who invented the term 'unicorn' but it's getting increasingly
more ironic.

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sotojuan
I do like reading "unicorns do X" and imagining real unicorns doing that.

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zenkat
Real unicorns don't give a rat's ass about the valuation of your startup.

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liquidise
> _if he couldn’t get a billion-dollar valuation straightaway for his company,
> he wouldn’t raise capital at all, saying the valuation was a “psychological
> threshold” for “certain types of customers”_

In psychology, this is referred to as Projection.

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joelrunyon
If this wasn't Slack that it was referring to - I think I'd agree.

However, if I remember correctly, it was basically Stewart taking advantage of
the investor frenzy and putting a ton of cash in the bank.

It's not like they're burning it on ads or promos like Groupon or Uber. My
feeling was they were taking advantage of the investing environment to really
shore up their cash reserves - no matter the valuation.

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tim333
Stewart Butterfield seemed remarkably astute in the reasons he gave to the NYT
as to why he was raising the money when he didn't need it:

"It’s pretty straightforward. I’ve been in this industry for 20 years. This is
the best time to raise money ever. It might be the best time for any kind of
business in any industry to raise money for all of history, like since the
time of the ancient Egyptians. It’s certainly the best time for late-stage
start-ups to raise money from venture capitalists since this dynamic has been
around.

And as a board member and a C.E.O., I have a responsibility to our employees,
to our customers. And as a fiduciary, I think it would be almost imprudent for
me not to accept $160 million bucks for 5-ish percent of the company when it’s
offered on favorable terms."

It surprised me in the 1999 boom and crash how few players seemed to recognise
there was a bubble and game the system. Most of them believed the hype and
went bust. Only a few seemed to recognise their valuations were crazy and that
could be taken advantage of such as AOL merging with Time Warner. I think
Butterfield is one of the few to recognise the hype and take advantage this
time around. Many others are using the available cash to hire excessive
numbers of expensive employees which may bring them down when things dry up.

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sah2ed
Thanks for pointing that out. The full NYT interview can be found here [0].

[0] [http://bits.blogs.nytimes.com/2015/04/16/is-slack-really-
wor...](http://bits.blogs.nytimes.com/2015/04/16/is-slack-really-
worth-2-8-billion-a-conversation-with-stewart-butterfield/?_r=0)

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cavisne
So, I'm dubious about anyones ability to actually see a tipping point in
advance, but if this is the case how do software engineers (as opposed to
founders etc) protect themselves?

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lvs
Buddy, it already happened. It'll take a year to catch up to most of you, but
the "point" already "tipped" months ago. If your job fundamentally relies on
inflated financials, prepare your butt and your resume. Maybe apply to work
somewhere that is very well established and clearly has positive noncyclical
cash flow.

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bognition
When was this tipping point? What is the evidence that supports it has already
happened?

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nostrademons
IMHO, August 2015. It's usually better not to bother trying to convince
others, though; just bet your book and either you're right or wrong, but at
least you won't have wasted your time.

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fallingfrog
"Unicorns reach a tipping point" is one of those phrases that are going to
give future historians work to do.. Did 21st century people believe in
unicorns? Was unicorn tipping like cow tipping?

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neonbat
Does anyone else think this title is ridiculous?

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crsmithdev
...just months after TC seemingly can't run itself out of breath highlighting
and hyping up all these same companies enough. Constant fanfare or doom, all
hyperbole, nothing in between or representative of reality which is somewhere
in the far less exciting middle.

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marktangotango
This is true of financial journalism in general, imo.

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toomuchtodo
As long as the market is moving, you can always make money.

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eru
If it's stagnant, you can still sell options.

