2016 - a year of reckoning for unicorns?

[Bernard Murphy]

It seems like half the tech business articles this year have been consumed with unicorns, the billion dollar (valuation) startup businesses like AirBnB, Uber, Pinterest and so on. Point about these being that (a) they attract crazy levels of funding given their theoretical value and (b) there is very little substance to support those valuations. Many have said the inevitable collapse of unicorns presages the burst of the tech bubble yet again, but that's not quite right. All of these companies are private so when the bubble bursts, VC funds and their (limited pool of) investors will be hurt and the employees will lose their jobs, but there really won't be any impact on the broader market.

In fact I think this can only be good in the long haul. Unicorns have distorted the investment landscape both in pulling capital away from otherwise worthy ventures with more realistic goals, and they have distorted expectations into believing that only $B ventures are worthy. In fact I'll go further out on a limb to say that the investment pendulum is long overdue to swing back from software-only, social, mostly very lightweight ventures to more technology-rich ventures with serious new hardware content. We have no problem paying real $$ for things we can touch and I think we are going to start to remember that again.

Nice article in Wired on unicorns

If the Unicorn Bubble Bursts, Workers Will Feel It Worst | WIRED

 

[Daniel Payne]

I agree with your main points, however consider that the employees at these Unicorn companies may each own a laptop, tablet and smart phone device, so when the down-sizing happens then their purchasing of semiconductor content goes down, which does impact our semiconductor industry a bit.

 

[Bernard Murphy]

Fair point Daniel - I should have said "... will not significantly impact..."

 

[Daniel Nenni]

Here's another:

New billion-dollar startup unicorns in 2015 - Business Insider

Take a look at the list, some are quite clever. Others not so much. And lets not forget the dot.com bubble....

https://en.wikipedia.org/wiki/Dot-com_bubble


To quote the great Yogi Berra: "It's déjà vu all over again..."

 

[Bernard Murphy]

Dan- agreed a number of them look good on paper, but they're all still private so a dot-com bubble seems unlikely unless they all go public in a rush and crash the markets. A lot of investors are becoming increasingly skeptical about these companies, eg

Forbes Welcome

One interesting dynamic is that the recent fed rate hike may force some unicorns to go public in 2016, which could trigger a bubble:

Fed Rate Hike May Force Unicorns Like Uber, Airbnb And Snapchat To IPO In 2016, Risking New Market Bubble

But I lean more to the view that the public markets are increasingly sensitized to the risks associated with unicorns (witness the Square IPO Square's disappointing IPO shows the risk of overvaluing tech unicorns | The Economist), leaving not much runway for any other attempts before they're all shut out.

 

[Robert Maire]

View attachment 16123

 

[Bernard Murphy]

Interesting graph. I wonder how it will trend next year?