- Over the past five years, the venture-capital industry has collected lots of money and has pushed to create a “massive growth in the number of venture-capital unicorns.”
- Worries have increased over a possible recession and/or excessive market volatility that might threaten the viability of potential Initial Public Offerings (IPOs) for investors to cash-out.
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This “New Business Dynamic” has evolved from one element of the success of the “new” Modern Corporation, but will that element be enough to bring success to the unicorns?
Rana Foroohar writes in the Financial Times about the possibility of another tech bubble, one that may be edging toward another bubble burst.
The issue raised by Ms. Foroohar is the “new business dynamic” that has taken over the world of tech startups and tech IPOs.
The emphasis is upon what is referred to as a “unicorn” startup.
In 2013, when the term “unicorn” was first used, a “unicorn” was an early stage company that was coming to market with a $1.0 billion valuation. These “unicorns” were unique because they were so scarce.
Mr. Foroohar writes, “Over the past five or so years, there’s been a massive growth in the number of venture-capital-backed unicorns.”
But right now there is concern about what might happen in 2019 because of the dark clouds looming over the new issue market.
Such companies as Uber, Lyft, Spotify and Dropbox are all planning to go to pubic sooner rather than later. This, Ms. Foroohar claims is “not only because of worries about a coming recession and volatile markets, but because (these companies) have grown so fate on private funding, it is unclear whether the market will be able to sustain their valuation.”
This is where the “new business dynamic’ comes into play. Ms. Foroohar writes “while technology has made starting a company cheaper, becoming a success in now more expensive.”
The reason? There is “an arms race to build the next “unicorn” start-up, one with a market capitalization of over $1.0 billion.” Or, like Uber with a value “pegged at $100.0 billion.”
This $100 Billion valuation is NOT happening, the market index will never allow a company that has NEVER made a profit to IPO at this amount. Smart investors know this.