If Everything Is So Great, Where Are The Unicorn IPOs?

Tyler Durden's picture

Authored by Mark St.Cyr,

Over the course of the last week it seemed no matter where I turned in the business media one meme was being pushed above all others: It’s still a great time to be a private tech unicorn. Implying, that funding rounds were still “robust.”

What wasn’t said, so I will, is this: It’s a great time to be a private “unicorn” rather, than take the chance and become the poster-child for the IPO apocalypse. For it’s better to be assumed a $BILLION dollar success story rather, than IPO and officially open the books to the market and remove all doubt – that you’re not.

It would seem “additional funding rounds” is the story (the only story I’ll contend) that keeps the whole “unicorn” meme alive. For if these were great companies, at great valuations, with great prospects to earn or reward investors, founders, employees and so forth untold riches (which of course is told as to lure and keep talent and others) during the same period the “markets” were within a trading days movement of reaching never before seen in human history highs. How many tech unicorns of the over 150 now residing in the “unicorn stable” even hinted at a date, never-mind actually announced? __________ (Insert crickets here.)

At this stage a few questions must now be addressed. One would be: If it not now, when? And not a vague “when.” But rather: precisely when?

If a company today that has been raising funds to even be within this so-called “exclusive club” can’t articulate a date, or time period, with specificity. In other words: Definitive announcements that have meaning with dates such as those declaring “within the next 30, 90…,” whatever days. Or, something reminiscent of stating “November of this year barring a market panic or sell off etc., etc.” Not some lame “Market conditions warranted us deciding to postpone setting a date blah, blah, blah…” PR trash. Than are they to be believed of any metrics?

Why is this so important one might be asking? Easy, let’s put this into some context:

For all intents and purposes, 2016 is close to being over for just an announcement and the time needed to follow up with the subsequent roadshow to price and launch. Remember, we are currently 5 weeks away from the half-year point of 2016 without either an announcement or actual IPO. (Oh wait, there was one – Dell™. Need I say more?)

Again, it must be reiterated: 2016 is now well into its 5th month and within spitting distance of “the first-half is history” mark. And during this period the “markets” have been within a percentage point of breaking the all time highs and still remain at elevated levels.

The rise from the lows of February were not only meteoric, they were actually historic in both their percentage gains, as well as, time frame.

Add to this the Fed. has all but conceded “extraordinary monetary measures and policy” are the norm, rather than temporary. While reiterating: will remain for the foreseeable future. And there’s not a one?

Think about that. Does all that square with what you’ve been told (or sold) when it comes to everything “The Valley?” And speaking of “square….”

It would seem the price for one of the “The Valley’s” most recent (recent as in Nov. of 2015) IPO’d unicorn’s: Square™ isn’t doing all that well. As a matter of fact, it seems to be doing as well as its other CEO’s responsibility: Twitter™.

Remember when all the chatter and twit-storms were about how great it would be to have one CEO run two “disruptive” companies simultaneously? Especially when the “Jobs” reference was invoked? How’s that all working out? If you really want to know – just look to their stock chart. If you own them in your 401K? I’ll wager you already know even without looking at your last statement.

As I’ve stated many times, I take no issue with Mr. Dorsey, or the companies he’s founded. Both he and his companies show great value, as well as, potential for the future. However, with that said, the idea that the valuations and metrics used were both “reasonable” as well as “sustainable” along with the idea that Mr. Dorsey should be applauded to take the reins as CEO of two publicly traded, highly competitive, as well as, ever evolving companies simultaneously? All while one is flailing in its stock valuation while the other debuts with an IPO? It was ludicrous at best – moronic at worst and I stated so.

To this I was (as always) scorned and vilified by many a Valley aficionado. Yet, today? Well, let’s just say I’ve watched, read, or heard more revisionist statements about that “great idea” than I’ve heard a politician “clarify” their previous position.

I’ve argued ad nauseam about the whole Valley’s “It’s different this time” knee-jerk response to criticism. Especially when it has come to the once coveted title of “IPO’d.”

However, there’s also been another attribute which seems to be just as ensconced, as well as, obvious to those who are paying attention. e.g., Once rarefied air seems to be turning into exhaust fumes. And nowhere is this more apparent than with Apple™.

Nearly two years ago to the day I penned the following article, “Did Apple Just Become Microsoft? At the time this was a complete and utterly opposing viewpoint to anyone comparing Apple to _______(fill in the blank.) There was the acquisition of Beats™ along with what I depicted as a complete and utter cave in to Wall Street. As quoted in MarketWatch™ To wit:

“But St. Cyr takes it a step forward by comparing Apple to the lumbering software giant. In a “complete and utter cave-in to Wall Street,” Apple’s latest report wasn’t consumer-products based; rather, it was designed to play Wall Street’s game, he says.


“Dividends, debt, splits, and more,” he said. “I don’t think the iPhone has added as many new features at once as the new features released in Apple the stock.” That’s how Microsoft MSFT does it, said St. Cyr as he waxed on about the Apple you knew is no longer. “ I hope I’m wrong, but the actions are beginning to not only speak for themselves – they’re screaming.

At this time Apple was the; and I do mean the darling of both Wall Street, as well as, most 401K holders. During that time it was basically insinuated; to question anything Apple whether in terms of strategy, products, acquisitions, and more. It was implied: “You – just don’t get it!” Fair point. The only problem? As of today, near two years to the day – the value of your shares are worth about the same as they were then. And, for some – the same as two years prior in 2012. To even think of such a possibility during 2014 never-mind articulate or postulate the idea was met with dismissal as well as scorn. And guess what the current meme surrounding Apple is today? Hint: Has Apple become Microsoft?

Which brings me around to another postulate which I’ve articulated that today is being met with just as much revile as well as repulsion to even consider the possibilities: Social media.

Today much like Apple during the wake of the release of the iPhone 6S®, Facebook™ latest earnings release is being heralded as “the earnings report that should put all the nay-sayers to rest.”

After all, it’s touted “just look at what they’re doing with mobile!” And it’s a fair point. However, what I thought was interesting that went either unnoticed, or, blatantly under-reported was the fact that Mark wants to add some new class shares so that when he sells his current shares he can remain “in charge.” OK, fair enough. It’s not like this type of thing hasn’t been done before. (If memory serves me, I believe Google™ for one did something similar) Yet, when you put it into context with another announcement made similar by Amazon™? It’s just one of those things that make you go hmmm…. What was the announcement?

It seems (to borrow from my previous article) “In a complete and utter cave-in to Wall Street” (in fairness also with some impending pressure from regulators) Facebook along with Amazon it has been reported will declare more GAAP refined metrics as opposed to Non-GAAP when it comes to “equity-based pay costs.” i.e., reporting them as real expenses on the earnings reports. As it should be in my opinion.

However, what does such a move hold for others? Others such as – new competitors? Older ones? Ones not even IPO’s as of yet? Or, better yet: how about when competing for those precious “to be allocated” sovereign wealth/central bank funds? After all, such a move would make most, if not all “unicorns” scrambling for funding rounds not only look worse than unprofitable. But probably looking closer to – insolvent.

Imagine closing the door on future rivals with the possibility of making your own earnings statement appear worse. Now that takes not only some chutzpah, but if it were to work? It borders on genius!

If you think Twitter, Square, or others have an issue reporting investor friendly incentive now? Just wait if their demanded (whether by regulators or peer pressure) to report using only GAAP. And for those remaining in the “Unicorn stables” awaiting cashing out in the IPO horse-race to riches? You’d be better off investing in any company that uses unicorn tears in its glue formulation. For you would all but drive a stake into the heart of most in the current batch of tech IPO’s in waiting.

Imagine for a second you’re a rival to Facebook like, Oh I don’t know, let’s say Snapchat™. If you have yet to IPO: what are the chances you’re going to get anywhere near those implied valuations (I believe it’s somewhere around $16 BILLION) if now you’ll need to report using GAAP? Are you beginning to see my point?

A move like this (if it actually was an intentionally executed tactic, to which I would commend from a business perspective as: brilliant) would all but surely close a door behind you stifling anyone rivaling your acquisitions or future customers. That and surely just as important – cutting off nearly all their future investment dollars.

Any upstart or potential rival that is “cash burn” sensitive would be all but scorched out of business in no time. Then, all one would need to do is wait for the bankruptcy trial and pick up any patents and more on the cheap. As in very cheap.

And it is precisely this which increases the potential as to keep more IPO’s off the market, rather, than on. And for one very often, overlooked reason: VC’s net worth can remain (or at least appear) more robust the longer it’s off the IPO scene – rather than on it.

I know this sounds counter-intuitive at first but remember: For a few million dollars you could “invest” in a startup at the right funding level and have your “assets” stated to be worth multiples more. Much more, as in BILLIONS more.

And don’t forget these “valuation metrics” for most of today’s tech unicorns are worth $BILLIONS and billions because? Hint: Because they say they are. That’s it.

If you think Non-GAAP accounting was “inflationary” when it comes to a company’s worth. The stated metrics for valuing whether or not a “unicorn” is a “unicorn” makes Non-GAAP look conservative!

So when it comes to all this nascent talk about “unicorns” and their subsequent funding rounds just remember: Is it really a great time to be a private unicorn? Or – has that window not only closed, but maybe, just nailed shut by two of the biggest to ever profit from the meme?

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Latina Lover's picture

The Valuations for the most part are BS, based on collusive self trading between related parties. Imagine if a group of stock manipulators decided to 'bid up' the cost of a company by trading stock between one another at increasing prices, and then try to sell this valuation to outsiders. Unicorns are mostly scams.

junction's picture

Unicorn IPOs will end up as POSs.  A unicorn like WeWork Companies Inc. boosts its value by getting some fund to buy shares at a high pre-IPO price, boosting the value of the remaining shares.  Laddering, anyone?  

El Oregonian's picture

Yes, where are the IPO virgins that should be offered up to appease the VIX Volcano-gods?

wise_owl_says...'s picture

they do sell to outsiders after they have run up false valuations amoungst themselves... sell to highest bidder. who?  mainly to gullible and or bought off (managing director) government and private pension funds. if you like your 401k, you can keep your 401k.  until it all disappears in a blinding fast three card monty.

stant's picture

Time for a other " big event" like just after the .com bomb

Dre4dwolf's picture

All the good companies worth investing in are private, most of these IPOS are failed ventures that the owners want to dump for a profit and let fail shortly after.

more or less... " well we tried and we failed , lets have an IPO and dump this dead horse on someone else "

Most of the good ventures are privately funded.

TheRideNeverEnds's picture

There is much uncertainty; will we make new highs, back off and then get moar QE or will we back off, get moar QE then make new highs?

When the next round of printing starts so will the next round of IPOs

Excursionist's picture

I'll likely get my head bitten off for mentioning this </begin sarc> awesome </end sarc> example, but SecureWorks priced recently.

adr's picture

If it weren't for the great financialization and the get rich quick IPO bullshit of the past 30 years, we'd probably be colonizing Mars right now.

How much has been pulled out of the productive economy to fund this bullshit. The brainpower used for programing front running algos instead of real science. Billions have been spent on microwave transmitters to shave milliseconds off trading platforms, yet I am still stuck paying $50 a month for 20mb "broadband". We haven't built a new oil refinery or modern nuclear plant, but fuck Goldman Sachs can front run Citigroup by one tenth of a millisecond.


yogibear's picture

Wait until the Federal Reserve prints trillions more to stimulate and boot stocks.

The Deficit  should be hitting $20 trilllion this year.

The Fed's current policy is infinite QE  and debt. They'll keep buying US treasuries, even through other countries.

While using naked shorts to push down gold and silver.

Just a matter of how long they can continue with their smoke and mirror BS about a recovery.

Larry Dallas's picture

Strong article! Good job Mark. Always like reading these!

moleson1965's picture

Just wait until Google and Facebook will meet reality: Advertising is their/a major income stream. Guess which budget position their clients cut first in an economic downturn...? Advertising. And what if advertisers start to understand that they pay way too much for advertising on those platforms? - Cut current revenue in half and you will then be able to calculate the real value of those giants. - By the way, what has been Facebook's contribution to growth of productivity so far? I would advocate it has rather contributed to a decrease in productivity by absorbing people's attention from things that matter more than the latest pic of whatever irrelevant thing.