Unicorn Valuations and Paybacks
February 18, 2016
I read “The Terms behind Unicorn Valuations.” Valentine’s Day seemed to be an ideal time to think about billion dollar outfits and those who fund them. Note: I did not get a valentine this year.
The law firm generating the document is a specialist in unicorn analysis. The most recent report represents 2015 data. The major takeaway in my opinion is that 2015 was the Year of the Unicorn. With the Chinese New Year in mind, 2016 is the Year of the Monkey as I recall.
I noted that some investors in unicorns get “downside protection.” I interpreted this to suggest that some folks have a shot at getting some of the money back if their unicorn catches pneumonia or worse. I like the discovery that flexibility may have been used to achieve the $1 billion valuation.
For me the key finding was:
the beginning of the period covered by the survey was markedly stronger than the end of the period covered by the survey.
The economic uncertainty may have been a factor. The report does not dip into psycho socio economic reasons for the dip.
The write up concludes:
companies in need of additional funds might find it necessary to provide new investors liquidation or other rights superior to their unicorn (and other) investors to attract needed capital. This happened frequently when the dotcom bubble burst in the early 2000s. Although the use of structures that reduce or eliminate outstanding investor rights is uncommon during most of the venture cycle, they become more common during significant downturns in the venture economy.????
What about the financing of search and content processing vendors? Only one is a unicorn, Palantir. Worth watching.
Net net: No valentines for those who get bitten by a unicorn.
Stephen E Arnold, February 18, 2016
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