How to kill a unicorn
from David Ruccio
You can’t, of course, kill a unicorn. Because it isn’t real. It’s just a mythical creature.
Except, it seems, in the world of venture capital. There, as I’ve come to learn from Rupert Neate [ht: ja], unicorns abound. And they just may represent the beginning of the end of the current tech bubble.
In January 2014, only 43 tech startups had been worth $1 billion or more pre-flotation in the past decade. Today there are 82 $1 billion pre-IPO startups in the United States and a total of 125 worldwide. Uber, for example, has been valued at $52 billion.
Alan Patrick, co-founder of technology consultancy Broadsight, agreed that there has been too much “irrational enthusiasm” for investing in startups, and it is unlikely to be matched by what the market is prepared to pay at IPOs. “The private market has been driving these valuations to extraordinary levels, and as they approach the public market the smart money is starting look at it and go ‘oh no, no, no’.
“The number of unicorns is a sign that there is a bubble in the private market – in the dotcom era there were 10 or something, now there are too many to count,” he said. “That for me is a sign that these values are untested and out of step with reality. And none of them are making money, they are all buying revenue with huge war chests.”
Patrick reckoned the 2.0 tech bubble will come to be defined by the unicorn. “Whether it’s the ‘big swinging dick’ of the last one [the build-up to the financial crisis], there is alway a name that attached to a bubble; for this one it will be the unicorn.”
But he added that he doesn’t think the bubble is about to burst just yet. For that to happen, he said, there needs to be an “insanity event” – “something that in hindsight is so extraordinarily crazy, but looked normal at time”.
“Last time it was AOL-Time Warner [a $165bn takeover]. It’ll be an event when everyone goes, ‘Oh my god, that was nuts’,” he said. “That’s what I’m waiting for, and when that happens you blow the whistle.”
I suppose, if “irrational enthusiasm” (based on a tremendous amount of surplus chasing potential profits) is what gives life to unicorns, then it’s appropriate that an “insanity event” (after which the surplus moves elsewhere) is what will kill them.