Great quote about ‘Unicorns’ (lightly edited from verbal form):
“I looked through the list of companies that have an over a billion dollar valuation recently, and more than half, I think, were valued between like a billion and 1.5 billion, and something like a quarter were valued exactly at a billion. So people are clearly obsessed with getting to this mark, and they are willing to put all sorts of weird structure on their terms to get there. If you were looking at the financial data, you would say something is amiss. You’d say there is some fraud going on or something, if you were just looking at the numbers. Because they don’t fit the distribution you’d expect. There is this huge desire to get right to a billion or just over. I don’t care about it. I think it’s dumb, but that’s not going to make a company great or not.”
As a sidenote, Sam should probably stop antagonizing his interviewers by dismissing the business pontification featured on their shows :) I agree with him but it’s also a bit unnecessary.
Actually, I'm pretty sure it proves he's right. In these distributions, the percentages matter a lot. I think the mentioned figures were upwards of 50% for startups in the 1-2 Billion valuation range? That's a fairly nontrivial difference from the expected 30%.
Is there a real stats person around here? I bet that if you plugged in the numbers into the formulas in "Statistical Tests" in the link that you gave, it would pretty much show that Sam is right. When I punched in the numbers and ran the Chi-Square test, it seemed kind of off. :P
nope. pet peeve - symbolism isn't irrational. "a billion dollars" is a powerful symbol, and may well pay off as much in psychological benefits as it loses in structural weirdness. or it may not, but it's definitely not clear-cut enough to dismiss as "dumb".
Yes but anytime you are engineering “financials” instead of engineering sales and customer satisfaction you are headed down a path that warps things. In the case of unicorn valuations it’s your term sheet: investors who are getting in at high symbolic valuations are asking for special provisions to protect downside that you wouldn’t otherwise grant them.
All of those (eg. sales and psychology) are interrelated. For example, say you're an enterprise SaaS company. Saying, "We have a $1B valuation and aren't going anywhere" actually carries meaningful psychological weight during the sales process -- weight which could be the difference between winning or losing out to a competitor. In that regard, it may matter...
Because PLS Logistics Services does ~$100m a year more than dropbox (PLS rev is $515.6m) and has a growth rate of 42% and no one has ever heard of it. Dropbox was reportedly valued at $10 billion in November 2014, when it raised $350 million in its Series C[0]. You can plot the failure of the company on a graph inversely proportional to moores law, and yet they are "crushing it". So with less liquidity, they somehow have extracted maximum mileage out of being a 'Unicorn', being on the top of every 'unicorn list', and getting heaps of coverage in the media. They will IPO and exit which, after the lockup period ends, is a win.
So, to what extent is being a 'Unicorn' priced into the company? No one knows of course because we can't even see their financials. So other companies don't have to really engineer anything. Just get close to that num, and then wait 6 months. So, the point is, the media's obsession with ranking things is important and being in that top 10 list is helpful.
Donald Trump has become qualified to run America because he was on television, has > $1b, and is on a list.
I think you just agreed in a slightly angry way with plenty of citations.
Internet company valuations are also driven up by a small group of very rich people who all collude to drive up valuations anyway and promote their own rich people agendas anyway. It's not entirely based in the real world and doesn't come under real world scrutiny until it's too late.
> I think you just agreed in a slightly angry way with plenty of citations.
I am not sure what you mean? The citations I included, I agreed with and included them to substantiate my claim, which was:
It is not dumb or irrational to get to $1b, I disagree with Sam there. This allows you phenomenal free marketing, exposure, access and capital. It is rational to continue to take money and increase your status as the market is placing a huge premium on reputation and hype. I do think a horrible equity structure would be a bad compromise to make, but given that these markets are private your value is basically your old valuation (which prices in extreme future growth) and your status/pr/exposure. So depending on your value you can fake your way onto the unicorn list.
PLS Logistics is a inc 5000 company, I do not know the valuation. I suspect it is much less than the article I cited stating the dropbox deal terms >$10b. To be clear, the article, which I agree with, states this is well overvalued, but the "price" is around that number by the market. Box stock has liquidity, less uncertainty (known financials), more enterprise customers (stickier) and is valued less. I think storage is a bad business to be in and it is likely in the twilight of 2016 price parity is reached between SSD and HDD drives, a terabyte SSD can be had for $300[0]. Consumers can use free solutions like google and apple, or a 256GB thumb drive and enterprise companies will migrate to locked down internal private networks.
Regardless, freemium and non-monetizing service companies are in bad shape. Investors and founders have an incentive to get their pseudo-value up, and I was addressing that point. Status, in a market with limited transparency or liquidity, is passing as capital and given the rate hike that is coming and the likely failure of a few of these companies creationg a series A crunch, it wouldn't be unwise to cash that status in for currency.
If you were referring to my other comments about the Samwer bros. I apologize for the long winded spiel above. Those were really bad punny jokes and allusions to Bloomberg not editing the story and referring to it as 'Y Contributor' which sounded like a knock of version of YC.
edit: If you meant that the:
> It's an arbitrary number of digits in base 10 numerals.
I disagree in that, much like in a Casino, the value is def. not realized until you walk out. That amount of arbitrary digits when that bell on the IPO day, will make them anything but arbitrary. Having that number start high and go up is good, and even if they are loosely based on something, people will used past values as a benchmark, at least initially. By then some wil have cashed out. Depends on what others are optimizing for.
Digits aren't wholly arbitrary, but they will become important.
> Because PLS Logistics Services does ~$100m a year more than dropbox (PLS rev is $515.6m) and has a growth rate of 42% and no one has ever heard of it.
The business version of "nobody goes there anymore, it's too crowded".
Well, why isn’t he interested in pontificating about the business environment? It’s probably because he doesn’t consider it worthwhile. I would just say that: I don’t pontificate on trends when I don’t see concrete value in reasoning about them. If you’re literally on someone’s show and dismissing their program or channel it’s a bit biting. Their whole raison d’etre is to talk about the business environment.
“I looked through the list of companies that have an over a billion dollar valuation recently, and more than half, I think, were valued between like a billion and 1.5 billion, and something like a quarter were valued exactly at a billion. So people are clearly obsessed with getting to this mark, and they are willing to put all sorts of weird structure on their terms to get there. If you were looking at the financial data, you would say something is amiss. You’d say there is some fraud going on or something, if you were just looking at the numbers. Because they don’t fit the distribution you’d expect. There is this huge desire to get right to a billion or just over. I don’t care about it. I think it’s dumb, but that’s not going to make a company great or not.”
As a sidenote, Sam should probably stop antagonizing his interviewers by dismissing the business pontification featured on their shows :) I agree with him but it’s also a bit unnecessary.