
Tell HN: Unicorns aren't ad-supported - Animats
Looking at the &quot;Complete list of unicorns&quot;[1], something stands out.  Out of the top 50 startups by valuation, only three, Snapchat, Pintrest, and Vice, are ad-supported. The others all sell a product or service paid for by its users.
Advertising may have powered the first dot-com boom, but it&#x27;s not powering this one.<p>[1] https:&#x2F;&#x2F;www.cbinsights.com&#x2F;research-unicorn-companies&#x2F;
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NumberCruncher
Startups are the penny stocks of the 21ht century. Buy 4% of a company for 40
M$, talk a lot about how this company is valued at 1 B$, wait until enought
people belive it, make an IPO, take the money and run (a.k.a. pump and
dumping). Would Jordan Belfort still be in business he would high probably be
a VC.

~~~
ekanes
You might be right, except that very few are going public compared to
historical numbers.

~~~
segmondy
Right, but most VC's want an exit, acquisition or IPO. They are not in it for
the next 20 years or so. They are waiting for the right market conditions.
Which happens when the public really buys the hype and will spend their money
buying up stocks after IPO. They can't go public preemptively.

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throwaway13337
Anyone else surprised by Blue Apron and Hellofresh making the list?

I can't imagine there are two multibillion dollar food recipe delivery
subscription companies.

Is this as crazy as I think it is?

~~~
whazor
HelloFresh has a montly sales of 20 million. Lets assume they get a margin of
40% (which is just my guess). Then they can pay off these investments within
31 years. And I did not even consider their rapid growth.

~~~
jpatokal
40% sounds hysterically optimistic. Typical margins in the restaurant business
are around 3%, and while HelloFresh's model and costs are obviously pretty
different, they're still grappling with restaurants as competitors and dealing
with many of the same problems: supply chain management, perishable product,
hygiene and quality are a major concern, labor-intensive business, etc.

Also, given the rate at which HelloFresh is throwing around free boxes and
discount coupons and special offers here in Australia, I would be astonished
if they're profitable at all.

~~~
jon-wood
Its a massively profitable business model (at least once you've got the
initial momentum building via discounts and freebies out of the way).

Lets look at their "Classic Box" ([https://www.hellofresh.co.uk/food-
boxes/classic-box/](https://www.hellofresh.co.uk/food-boxes/classic-box/)),
which is £39 a week for three meals. I priced up what I could see of the box
contents using Hubbub ([https://beta.hubbub.co.uk](https://beta.hubbub.co.uk))
- largely because I work there, and so know my way around, and it came to a
little over £20, and that's without any real effort to match the portion sizes
they're shipping, I could probably get it down to more like £15 just by buying
just the amount of each ingredient needed for the meals being made, and going
direct to the producer rather than via high street shops who are going to be
adding their own margin.

That leaves, pessimistically about £20 to cover delivery, and the customer's
share of central costs such as recipe development, packing, and the usual
business expenses of a web based company. At the sort of volume they're doing,
I could see them easily making 40% profit, and potentially more than that.

~~~
Frqy3
So the question should now be, do they have a sustainable competitive
advantage, or are these high profit margins vulnerable to being competed away?

~~~
jon-wood
The only real advantage they have at the moment is momentum, and lots of VC
money allowing them to survive much higher customer acquisition costs than
otherwise. Otherwise, they're a specialised variant of online grocery
ordering, which at least in the UK is a huge and very competitive market. They
even have the advantage of being able to mail orders, because they're not
trying to deliver anything frozen, so logistics is essentially just a case of
negotiating a decent rate with a courier.

I'd be really surprised not to see quite a few companies pop up in the same
sector, there are already a couple I know of, possibly targeting particular
niches such as oriental food.

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artnep
I'm surprised by the dearth of companies with manufactured products,
especially since this is an international list. All I see are the 6 listed as
"hardware" \+ SpaceX.

Edit: plus Trendy and Theranos and probably a few more from the other
categories.

~~~
nbadg
After working on hardware teams in various capacities for 6 or 7 years, I'm
not surprised. Startups need momentum - especially massively successful
startups. And hardware, at this point in time, isn't something that you can
easily build momentum with.

Don't get me wrong, I don't think this is because of any inherent difference
between hardware and software. Sure, the requirement to physically build
something adds a bit of a delay, but computer simulation is so good these days
that the actual building bit is pretty infrequent. Plus, turnaround time is
usually pretty short - two weeks lead was pretty standard for the shops I've
worked with and at.

No, the problem IMO is that frankly, our software is shit. The end users of,
for example, Solidworks, aren't the people paying for the software, so there's
no direct market feedback. Mechanical design software was some of the earliest
software ever written, and it's been some of the slowest to change. The
hiccups are negotiable if you're working serially and alone, but the second
you want to do parallel development on something, or to collaborate with
anyone else, you're stuck throwing workaround after workaround on an already
slow process. And then there's the catastrophic state of CAM software, BOM
integration, inventory management, keeping the books on all that... everything
is its own walled system, nothing talks to anything else, and everything
sucks. I've spent literally days before duplicating information between Arena
and Solidworks drawings -- and they even actually have an integration.

I'm wholly convinced hardware unicorns are so rare because the toolchain we
use to build hardware is so bad. It stays bad for historical and short-sighted
economic reasons. That is to say, the whole situation is ripe for change. And
it's not hard to do, either: I coded up 85% of an MVP for a solid model merge
tool that would make solidworks files more or less git compatible in just a
month or two. If you want to play with that, it's a hacked-up VBA macro called
smgimport/smgexport available here:
[https://github.com/Badg/SolidworksUtils](https://github.com/Badg/SolidworksUtils).
I have a lot of thoughts on how to do this right. If you're working in this
space and want advice, I'm happy to help.

~~~
nl
I think your point regarding how bad hardware-design software is correct.

But I think that understates the many other problems with hardware.

Just off the top of my head, the following are problems that are incredibly
hard to solve for any new hardware company:

Distribution (how do you get your device into the physical and online stores
where people buy)

Logistics (how do you bring the parts together, make sure you always have the
correct parts, ship them to distributors etc)

Fast followers (If you do have a good device, why can't an existing
manufacturer copy what you made and use their better distribution to outsell
you and their bigger scale to get better prices on parts?)

Regulation (Many hardware devices need certification of various kinds before
you can even try to sell them. I'm not opposed to this, but it is harder than
in the software world)

etc, etc

~~~
nbadg
So I am definitely making a development-centered critique. Partly that's
because most of my experience is in development, and I have very little
experience in high volume product or DTC. However, I also think that the
software problem is a whole lot wider than design, and that the state of
software for hardware companies as a whole (including logistics!) is abysmal.

Distribution of physical product to stores is something unique to consumer
goods, and for physical hardware I think that landscape is currently
experiencing a great deal of change. Even ignoring marketplaces like Amazon,
we're starting to see the emergence of distribution / fulfillment as a
service, and the burden of entry into the online retail market is much lower.
Many very successful hardware startups have gone in this direction first, only
arriving at brick-and-mortar retail stores once the company is large enough
and established enough to spare the resources to keep that up.

Logistics and supply chain management are basically managed by software at
this point, but because there's no effective integration between software
(even packages that have the integration botch it) means that it's actually in
some ways made into a harder problem because the data is stored in 10
"convenient" places rather than a single unconvenient place.

The fast followers / competitors problem is, I think, actually a bigger
problem for the software industry than the hardware industry, with the
exception of offshoring. If you offshore, particularly to China, and don't
have a very good relationship with the factor(ies) you're working with, this
is a very real risk, if the entirety of the widget is being produced by that
one factory. With more complex widgets, this risk is substantially mitigated.
In general I'd say this is more a function of the quality and uniqueness of
the product coupled with your execution on it than something inherent to
hardware. This is not, however, a problem that good hardware software will
solve. The ability to rapidly develop things will actually make this worse. I
don't have a problem with that! Execution is everything, even in entrenched
industries, and Davids have always managed to topple Goliaths.

Regulation is also, in my mind, being held up by software. There's certainly a
component that's out of your control - once you fire off the paperwork, you
just sit and wait - but there's a lot you can do to smooth the approval
process on your own end, and a lot of that has to do with proper design
documentation, which is once again suffering from terrible software.

I'm not trying to say that having better software for hardware will fix
everything. It certainly won't. But, I do think it is the single greatest
limiting factor by far in hardware production. I would estimate it consumed
80% of my productivity or more. It's an astounding timesuck.

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nl
Clearly VCs are underfunding advertising backed companies.

Based on the past 150 years of so of history, ad-supported companies have
consistently delivered excellent returns. First the newspaper empires, then
TV, then Internet.

~~~
lappa
Don't you think there's a bit of a selection bias there?

~~~
nl
Well.. yes? Isn't that sorta, kinda the point?

Additionally, exactly the criticism could be made for this list.

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swalsh
The big problems the world/USA are currently working through are

1\. Preventing Global Warming / Dealing with what's already occurred etc

2\. Unaffordable / low quality healthcare etc

3\. Income Inequality / Affordable higher education etc

There's a bunch of big problems, but I bet you could make the case that they
go in those 3 categories above. The point is none of these are solved by
having a fancy animated website that makes money via ads.
Facebook/Google/Reddit etc created a bunch of value by connecting everyone.
They were a necessary unicorn for the time, and they can still be replaced.

But if you're looking to create a unicorn, you need to set your sights on
solving the big problems.

~~~
toomuchtodo
I would ignore #2. That's going to end up single-payer (as it should) in the
next 5-10 years.

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personjerry
How come Valve isn't on the list?

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nl
Valve has never taking funding[0] - which is how the Unicorns got their
valuation: they were funded at a particular value (eg in AirBNB's April 2014
round they took $475M at $10B valuation[1]).

[0] "Valve is self-funded.We haven’t ever brought in outside financing." pg 3,
[http://www.valvesoftware.com/company/Valve_Handbook_LowRes.p...](http://www.valvesoftware.com/company/Valve_Handbook_LowRes.pdf)

[1] [https://www.crunchbase.com/organization/airbnb/funding-
round...](https://www.crunchbase.com/organization/airbnb/funding-rounds)

~~~
personjerry
Interesting. So that means Gabe Newell owns essentially all the stock?

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ForkFed
VICE _is_ awesome ... I don't care how they make money, as long as they bring
news to the people.

It's my personal unicorn!

~~~
mahouse
I thought journalism was supposed to be unbiased.

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steve19
It's supposed to be at least true... VICE frequently fails this test in
subjects I am familiar with. For example, I watched thier ISIS documentary on
the weekend, it's full of staged battles.

But I admire them, they have figured out post mainstream post adblock
monetization of news.

~~~
gpvos
This is true for all journalism: as soon as it's about something you know
anything about, you will notice there are lots of errors.

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lcswi
VC money powers them.

~~~
nl
Not for most (or at least many)

Airbnb, Xiaomi and Palantir are probably profitable now. That's 3 out of the
first 5, and I suspect that is broardly correct for most if the list.

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bane
Palantir takes regular enormous infusions of VC money. My guess is that they
are in expansion mode still, but aren't profitable (or not profitable enough
to bankroll their own expansion).

~~~
nl
A lot of these companies are taking VC money to pay out the founders and/or
early employees.

Atlassian is a good example[1]. Early employees sold their shares directly to
the VC fund - none of the money went to the company.

That's pretty common - in the couple of years before Facebook float VCs were
buying their way in anyway they could.

[1] [http://www.smh.com.au/it-pro/business-it/atlassian-valued-
at...](http://www.smh.com.au/it-pro/business-it/atlassian-valued-
at-35-billion-20140408-zqsjo.html)

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ducuboy
Heh, "Updated in Real Time", like a unicorn flight tracker board.

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tobltobs
Yeah, Palantir is selling a product. The product consists of information about
you. But they have no ads on their page, then this must be ok.

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lun4r
Facebook?

~~~
nl
Facebook is a publicly traded company. "Unicorns" are private companies valued
at over $1 billion.

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brudgers
Google is ad supported. And the ultimate unicorn.

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abustamam
"Unicorns" are private companies valued at over $1 billion.

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draw_down
Google is.

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ablation
Interesting point. Apropos of not much, a lot of them use paid advertising in
some form to drive awareness of their products or services, though.

~~~
x0ra
Though, I haven't heard of approximately 95% of the companies listed...

