This article describes an effort to develop "unicorn swaps" to ultimately provide access to shorting private companies. Matt Levine wrote about this article this morning, summarizing the main points:
Here is a Medium post from Avish Bhama of Mirror, who is actually trying to make unicorn swaps happen. His team met with 65 potential counterparties, got a sense of the market appetite, drew up an ISDA and "partnered with a valuation firm to help us mark these illiquid swap positions on their books."
Levine also went on to describe how he would improve this effort:
First, I'd do it at a bank...a tiny startup with a clever idea that meets with 65 investors has barely scratched the surface of potential interest in unicorn swaps. What about the mid-sized mutual fund manager who wants long unicorn exposure but doesn't get invited into late-stage rounds? What about the in-house hedge fund of a giant tech incumbent that wants to double down on its plans to crush a unicorn competitor? What about the thousands of rich private-wealth clients who fancy themselves tech geniuses? The target list is long but the hit rate is low. You need a massive sales force, longstanding relationships, standardized marketing materials, existing ISDAs and account agreements.
Levine has also written about this in the past:
You could even imagine starting a Synthetic Unicorn Fund that invests in the long side of a lot of UFSes, giving it exposure to big tech unicorns without actually buying any shares. Register it with the Securities and Exchange Commission -- it is not obviously worse than other exchange-traded products that invest in illiquid derivatives with their sponsoring banks -- and you could even sell it to retail investors as a way to get access to hot tech startups before they go public. Then line up accredited-investor unicorn skeptics to take the other side of the Synthetic Unicorn Fund's swaps.
For his part, Bhama (the author of this Medium article) concludes that "most of the interest we received was one-sided interest on the top dozen Unicorn names (e.g. everyone wanted to short Theranos, Dropbox and WeWork, or go long Airbnb and Snap)".
Here is a Medium post from Avish Bhama of Mirror, who is actually trying to make unicorn swaps happen. His team met with 65 potential counterparties, got a sense of the market appetite, drew up an ISDA and "partnered with a valuation firm to help us mark these illiquid swap positions on their books."
Levine also went on to describe how he would improve this effort:
First, I'd do it at a bank...a tiny startup with a clever idea that meets with 65 investors has barely scratched the surface of potential interest in unicorn swaps. What about the mid-sized mutual fund manager who wants long unicorn exposure but doesn't get invited into late-stage rounds? What about the in-house hedge fund of a giant tech incumbent that wants to double down on its plans to crush a unicorn competitor? What about the thousands of rich private-wealth clients who fancy themselves tech geniuses? The target list is long but the hit rate is low. You need a massive sales force, longstanding relationships, standardized marketing materials, existing ISDAs and account agreements.
Levine has also written about this in the past:
You could even imagine starting a Synthetic Unicorn Fund that invests in the long side of a lot of UFSes, giving it exposure to big tech unicorns without actually buying any shares. Register it with the Securities and Exchange Commission -- it is not obviously worse than other exchange-traded products that invest in illiquid derivatives with their sponsoring banks -- and you could even sell it to retail investors as a way to get access to hot tech startups before they go public. Then line up accredited-investor unicorn skeptics to take the other side of the Synthetic Unicorn Fund's swaps.
For his part, Bhama (the author of this Medium article) concludes that "most of the interest we received was one-sided interest on the top dozen Unicorn names (e.g. everyone wanted to short Theranos, Dropbox and WeWork, or go long Airbnb and Snap)".