
Airtable CEO on the continued importance of getting a ‘unicorn’ valuation - chatmasta
https://techcrunch.com/2019/02/19/airtable-ceo-howie-liu-on-the-continued-importance-of-getting-a-unicorn-valuation/
======
potatofarmer45
Any demonstrated success of a startup signals to partners, investors,
customers and employees that the future is bright and these parties adjust
their actions (often to the benefit of the startup). Unicorn status is just
one such signal(abient a very powerful one).

It's much much easier to hire good engineers at a lower payrate when the
signaling is good because they actual believe the paper equity they get is
actually worth something down the road.

In the same vein, positive signals and the good press that comes with it helps
you win business. In our case (no where near a unicorn), but we were featured
in a local paper. That paper was seen by the CEO of a company we were in
negotiations with and were stuck down on a lot of DD work. They wanted all
these assurances we would still provide services and won't just take the money
and go bankrupt a year later etc etc.

CEO saw us described as the "next big thing in X" and intervened. He told us
later he "knew" we were going to be huge and wanted to lock us in early as a
partner. Contract was signed less than a week later.

Unicorn status is largely a vanity metric, but it's also a power signal that
if used correctly, gives a lot of benefits to the startup.

~~~
dasil003
What I find frustrating about this is if it leads a founder take liquidation
preference multiples or other disadvantageous terms that drastically reduce my
chance of seeing any payday as an employee. I've been around, so I'll take
solid financials over juicy-looking smoke and mirrors any day, but my worry is
the median startup employee is young and inexperienced enough that it probably
serves the founder to play these games.

~~~
x0x0
To reiterate my experience: Fought is an overstatement, but we worked hard to
get 10 year options for our employees. No engineer we recruited or tried to
recruit appears to have cared. They do care about valuation. That comes up all
the time. This is across new and experienced engineers.

ps -- you can't blame founders for responding to the market. If potential
employees overvalue unicorn valuations and undervalue 83b or long term
options, well, I'm not capable of changing their minds. I sell to the market I
have, not the market I wish I had.

------
Animats
There's so much dumb money floating around that too many "unicorn" failures
are being propped up.

In the self-driving car area alone, we have:

\- Cruise Automation. Showed a video of simple lane following and hyped it as
self driving. Got acquired by GM for 1 billion. Claimed to have a production-
ready car in 2017.[1] GM now trying to dump them.[2] Being propped up by
funding from Softbank.

\- Otto. Showed a video of a self-driving truck.[3] Turned out this was on an
isolated road with lead and trail vehicles preventing any interference.
Acquired by Uber. Valuation only 680 million, though. Used to hype Uber
valuation. Self-driving technology so fake it killed a pedestrian.[4] Being
propped up by funding from Softbank.

\- Tesla. Showed a video of a self-driving car in 2016.[5] Turned out this was
the one successful run from many tries. Full self-driving never seen again
from Tesla. Softbank and Tesla discussed funding but Softbank declined.

[1] [https://www.businessinsider.com.au/general-motors-cruise-
pro...](https://www.businessinsider.com.au/general-motors-cruise-production-
ready-2017-9) [2] [https://www.bloomberg.com/news/articles/2018-06-15/gm-is-
sai...](https://www.bloomberg.com/news/articles/2018-06-15/gm-is-said-to-
explore-listing-shares-of-cruise-self-driving-unit) [3]
[https://www.youtube.com/watch?v=Qb0Kzb3haK8](https://www.youtube.com/watch?v=Qb0Kzb3haK8)
[4] [https://www.economist.com/the-economist-
explains/2018/05/29/...](https://www.economist.com/the-economist-
explains/2018/05/29/why-ubers-self-driving-car-killed-a-pedestrian) [5]
[https://www.theverge.com/2016/10/20/13343828/tesla-fully-
aut...](https://www.theverge.com/2016/10/20/13343828/tesla-fully-autonomous-
test-video)

~~~
Animats
Let's consider what would happen if self-driving started to really work. Take
a look at Navya [1] and Local Motors [2], both of which sell electric mini-
buses which can cruise around an small controlled area such as an airport
parking lot or college campus. They're slow and limited, but they are actually
carrying a few passengers without a driver on board.

Are those companies unicorns. No. They seem to be valued for what they
actually do. Which is replace a small number of low-wage employees with
expensive hardware that requires extensive support infrastructure.

Think of what it looks like if this really works. They get a few major
airports signed up for "transportation as a service". Their mini-buses go
between terminals, out to long-term parking, and out to rental car lots. Fine.
So now, at each airport, you have to have a garage, maintenance staff, a
control center, and some arrangement for dealing with problems. All the same
plant as a regular bus operator, plus the high-tech part, plus it has to be
close because these things can't drive some distance on regular roads to a
garage or parking lot.

It's "transportation as a service", which means you have to pay for all
problems. Which will happen. You'll have people cleaning off graffiti, fixing
corroded sensors in winter, towing in failed vehicles, and dealing with angry
riders who missed their plane. All you've saved is the cost of the drivers. So
you're probably not making big money off this.

It's so much easier at the hype stage. You don't even have to perform, let
alone survive on your own cash flow.

[1] [https://www.youtube.com/watch?v=TAAm-
wLInkE](https://www.youtube.com/watch?v=TAAm-wLInkE) [2]
[http://www.buffalo.edu/ubnow/stories/2018/08/olli-
debut.html](http://www.buffalo.edu/ubnow/stories/2018/08/olli-debut.html)

~~~
jdavis703
While I don’t think self driving cars have much of a near term future, I do
think this technology can be applied to infrasucture with dedicated right of
way like Bus Rapid Transit (BRT) to greatly improve headways. Sure transit
operators might have the same level of staffing, but now they can run much
more frequent service. And that more frequent service means more ridership and
fare revenue that can go to offsetting the technology cost.

~~~
nradov
BRT will never be a major factor regardless of whether humans or computers
drive the buses. Urban areas lack the space for building new dedicated bus
lanes. And outside of a few limited areas like New York City and San
Francisco, most voters are also motorists who are unwilling to sacrifice their
existing car lanes.

------
chollida1
So my first reaction was that this is just a vanity metric.

However, in the public cash equity markets there is an actual benefit to
having a "large" market cap.

note: Here I'll use market cap for public companies and valuation for private
companies as measuring roughly the same thing even though they have some
differences.

One of the greatest tail winds a stock can have is to be in a popular index,
this means that ETF's will be a forced buyer of their stock.

Most indexes have a market cap component and the amount of money tracking
large cap indexs dwarfs the amount in small cap indexs so a larger valuation
is obviously useful.

It can also help public companies borrow as debt to equity is a ratio that
most people consider when choosing to loan( buy bonds) from a company so again
market cap matters.

It also helps a public company pay its employee's in restricted shares as
these can be cashed out immediately by employees for actual money as the
shares come off restriction so again a growing market cap has the benefit of
giving employee's raises without any money leaving the company.

Microsoft used this better than anyone during the 80's and 90's.

It's less clear to me why a valuation of over $1B matters to a private company
though.

Even stock options don't really seem to matter as a reason for wanting a
larger valuation as typically employee's can't immediately convert options to
cash. In that case only the IPO price(hence public valuation would matter).

Is there any reason other than signalling that this company belongs with the
likes of Uber and Airbnb?

 __EDIT __agree with the child posters but they don 't really answer the
question of why $1B is important for the valuation in a way that, say, $990M
would not be.

~~~
Gpetrium
I agree with all the key points you have listed, I just wanted to add that a
unicorn became a status symbol that can impact a variety of things:

* A supplier to the unicorn may perceive the company as a future star, which makes them decide to provide goods & services at a discounted price with the intention of having their business for multiple years with potential for new business areas

* A future employee can perceive the company as "the next big thing" and decide to work there in part, because of their status symbol

* The medium-large investors may mentally perceive the company as a 'sure bet'.

* Small investors may perceive the company as "one of the ones that the big investment guns have approved off"

* Future & current customers may perceive them as a successful company

* The 'unicorn' name is catchy, increasing the brand value

All in all, 'unicorns' is just a measurement stick. In theory a $990M can be
just as successful as the $1B in the medium-long run, however, the perceived
view from humans (yes, all of us), can have a material impact on the business

~~~
everdev
> In theory a $990M can be just as successful as the $1B

I'm willing to bet there are gaps in valuation distributions such that a $1B
valuation is statistically more likely than a $900M valuation. I think by the
time the valuation is that high you might as well throw in an extra ~10%
valuation to get yourself the extra marketing of investing in a unicorn.

------
capkutay
Honest question: is the unicorn valuation just a tool for VCs to inflate the
value of their stock in the second market?

Here's a scenario that happened recently. Investors X and Y invested a $30
million Series A in UnicornCompany. Lets just say its a $200m valuation.

Those same exact investors invested a $50m Series C at a $2 billion unicorn
valuation (no new investors).

Doesn't that mean their initial investment is now worth 10x in the open
market? Thus making their return at least $300m on $80m invested?

~~~
PeterisP
Artificially inflating a valuation is not in VC interest - after all, an
inflated valuation means that they're getting less % shares of the company for
the same money.

VCs generally don't get any meaningful impact from intermediate numbers, they
get their numbers - both regarding investor returns and their carry fees -
only on exits. So the share they get for that money has a direct impact on how
much money the VC personally takes home after the exit. Any before-exit
valuations have only a PR effect for them (which _may_ be a factor if they
want to raise a new round anyway right now, and are failing at that - but if
they _can_ raise a new round, then this PR won't bring them any extra profit),
and any useful effect on the secondary market is too far in future; if there's
an investment round happening now, then any potential buyers would be in that
investment now; at this point the participating VCs are participating because
they want to increase (or at least maintain) their share, not divest it - and
if they want to divest after a year or so, the valuation PR effect will have
faded.

The benefits of such a valuation to the startup, on the other hand, are much
more clear.

~~~
kcorbitt
> VCs generally don't get any meaningful impact from intermediate numbers,
> they get their numbers - both regarding investor returns and their carry
> fees - only on exits.

The incentives can change if you look one level deeper. VCs often need to
start raising a new fund before all the positions in their existing fund are
fully liquid. By artificially inflating the valuations of their old fund, they
can demonstrate high performance to LPs, which may help them raise more
capital for the new fund.

~~~
PeterisP
It's true, however, if we look at what impacts the money that VCs actually get
themselves, "help them raise more capital for the new fund" only matters if
they're having trouble with raising that round (as I mention in the post
above).

In normal circumstances, where they _can_ raise the amount the next round
should have (i.e. one that they can invest with a good return) this isn't
helpful. More capital for the fund doesn't necessarily benefit them - they
need _enough_ pledged money for the fund, but if they get the ability to pay
twice as much for the same startups, that only decreases their take-home carry
after the fact; if they have so much capital that they have to invest it in
worse startups just to invest it in the expected timeline - that means worse
results and less profit for them; if they raise extra capital for the fund
that's sitting unused, then it decreases their overall profitability ratios
and again means less profit for the VCs personally.

However, if it's difficult for them to get enough investors for the next round
(e.g. during an economic downturn) then yes, in such particular cases the PR
advantage might be useful. But it's not in most cases, and not now, and the
impact isn't that much - the organizations who invest in VC funds (i.e. the
limited partners) aren't stupid as well, they can afford to do a _lot_ of due
diligence and all the data for the valuations and discussions and doubts about
the valuations is available for them. You could just as well argue that if
they inflate valuations, then the community of limited partners might think
that they're not prudent with their money and avoid investing in their next
fund. PR smoke and mirrors works well on the general public, but less well
(though not at zero effect) on the large investing institutions.

------
payne92
This is a double-edged sword for private companies.

On the positive, it's generally good to raise money when you don't need it.
You're more likely to get the most favorable terms. (Or, stated diffrently,
it's hardest to raise money when you need it most, with a zero cash date
looming).

On the negative, it creates a high bar to clear for the _next_ round of
funding. If you don't raise enough, and need more funding later, doing a down
round is _extremely_ painful. Worse, if you have anti-dilution and other
provisions, the cap table gets blown up. Lots of agita.

Public companies: different circumstances (market cap is a currency for
acquisitions).

Finally, I'm respectful of audacious and aggressive entrepreneurs, but I've
got a very sensitive hubris detector. A billion is an arbitrary ego number,
and "We don’t entertain offers.... . . and it’s literally not worth the time
of day, talking" is crazy. Tell that to Groupon shareholders that held stock
during Google's (reported) ~$6b offer in 2010. Ouch. Pride goeth before the
fall.

~~~
Simon_says
> If you don't raise enough, and need more funding later, doing a down round
> is extremely painful.

I hear this a lot, but I don't quite understand the sentiment. It's painful
for whom? The earlier investor, sure, but not the founders.

Scenario 1: I have a round of funding at $1MM valuation then later a round of
funding at a $10MM valuation.

Scenario 2: I have a round of funding at $100MM valuation then later a round
of funding at a $10MM valuation.

Scenario 2 has a down round, but it's unclear to me how anyone in this
scenario is worse off besides the suckers who bought in at a too high
valuation. They just overpaid; that's all. The business and the other
shareholders are strictly better off because they were able to get more cash
for the shares sold.

------
chirau
QUESTION: What is the difference between an "accredited" investor giving a
company money at a billion dollar valuation and just another regular person?

If A16Z gives a company 100M at a 1B valuation, it becomes a unicorn. Does the
same apply if my neighbor gives me 400M for 40% (1B valuation) of my company?
Does that make my company a unicorn?

If it does, what about if he gives me $1000 for 1 millionth of my company? Or
maybe with 5 or 6 other investors bringing on their $1000 as well at the same
valuation and adding validation?

Whose valuation counts and why?

~~~
crooked-v
"Accredited investor" in legal regulation terms is mostly a polite way to say
"has enough money to not be permanently ruined if one of their big risky
investments ends up in the hole".

That is to say, if your neighbor has 40 million dollars in the first place, he
almost certainly counts as "accredited", unless he's also got 50 million
sitting around in liabilities.

------
manishsharan
Their tools reminds me of Borland's Turbo Pascal --- in that it made
programming accessible to the masses .. well us geeky kids then. I wonder if
Borland's acquisition price comes close to $1Bn in today's dollars.

~~~
titanomachy
$75M in 2009. So no, not remotely.

~~~
andrewf
Borland declined dramatically. [https://www.cnet.com/news/borland-a-big-
lesson/](https://www.cnet.com/news/borland-a-big-lesson/) reckons Borland
peaked at a $7 billion valuation, and they did spend hundreds of millions on
campuses and acquisitions in the early 90s.

------
primitivesuave
Would love to hear from other founders here comment on raising money when you
don’t need to raise. To me it seems unfair to dilute employee equity for the
sake of having an extra 100M in the bank.

~~~
confiscate
ya but if you raise an extra 100M, that most likely is an up-round, which
means the value of employee's equity has increased

example: as an employee you own 10% of the company. The 10% is worth $10.
After company raises a 100M round and dilution has occurred, you own 1% of the
company, but that 1% is now worth $50

who is being treated unfairly? I don't quite understand

~~~
bduerst
The problem arises when the company exits at below the ridiculous valuation,
inflated by the up rounds.

Investors in the unicorn know it's a ridiculous market cap, but will lock in
preferential payout on the exit. This means that while the employee private
equity may increase in value, the employees get pennies on the dollar during
the exit because the majority of the payout goes to the investors who inflated
the price to begin with.

It gets worse when employees pay taxes on the equity at the inflated
valuation, but there are ways claw that back later.

~~~
airstrike
> The problem arises when the company exits at below the ridiculous valuation,
> inflated by the up rounds.

But you don't have the counterfactual to know what the company would have
exited for _without_ the ridiculous valuation. Probably a lower number.

~~~
bduerst
An exit is an exit. Failed companies getting acquired is still an exit,
whether it happened early without funding or later with a ridiculous
valuation.

The difference is the expected value of income that the employees are given in
equity, which is especially nefarious.

------
etaerc
It is actually quite stupid to get a unicorn valuation if you are not a really
good fit for world conquering business. In all other regards it is people
gambling using other people's money and using your time&health. Most ideas
simply aren't that kind of idea. And if you don't get other investors with
your idea think about simply doing a full time job and considering your
project a hobby. It can still turn to make you a tidy profit. And I can
promise you that if you are talented you can also work for big corps and enjoy
a good life there. Sure the tasks don't seem to be very meaningful, but if you
fake a new chat app as a unicorn startup it's not that much more meaningful
either.

------
Scarbutt
Curious, how do these products get introduced at established companies? I
suspect training and adopting new workflows adds lots of friction, so how do
they do it?

~~~
fellars
It happens organically with Airtable. We do custom implementations of it with
companies. Most get started by someone because its so easy to get up and going
but then reach a point where they need some more expertise and bring us in.

------
dafty4
[https://www.youtube.com/watch?v=7_KnUi3t2JI](https://www.youtube.com/watch?v=7_KnUi3t2JI)

------
username223
> until somewhat recently, we’ve been able to sustain our operations without
> any external capital [owing to] a product that monetizes itself, from a
> customer base that gets real value from us.

Translating this bafflegab into english is educational:

> We used to be profitable because people liked our product enough to pay more
> for it than it cost us to produce. Now we're not, so... unicorn?

------
kumarski
Been begging them to make a function that is "Date Cell was updated on."

~~~
fellars
That exists. Its currently in beta. I have had access to it for months. You
should be able to ask them to turn it on for you.

------
chirau
What is the difference between

