Calls on the impending doom for when “the end” will be upon us has been going on as long as the “beginning” itself. In other words – the moment it all started – someone began calling for it all to end. It’s the human condition. You’ll find it everywhere, it’s not solely restricted to the varying religions.
Yet, when it comes to business, there are signs that should be heeded when they appear, that should cause one to sit up, and take notice. Today, one has appeared; and the ramifications of what it portends may indeed mimic what many take as “the sign” that the apocalypse is truly upon us.
This final sign isn’t “a rider on a pale horse” signalling the end of times for humanity. No, but the similarities are quite striking, for the way I would describe this revelation is this: a venture capitalist riding a bloated, sickly unicorn, thus signaling the impending end of “it’s different this times” has surely arrived – once again. And the resulting devastation (once again) Will. Be. Legend.
I have written too many times to list my views when it comes to the entire “Valley” or “tech” mindset, and how it behaves in respect to business fundamentals and more. i.e., Basically, it doesn’t respect business fundamentals at all.
It behaves and acts as if it’s its own religion or cult. i.e., “You gotta believe! And when in doubt? Seek the good-book of Non-GAAP, and have all those misgivings put to rest. For remember the code: Get funded – get listed – get out. Then bathe and repeat. For remember – you are coders! So go forth and code; so that you may reap the rewards that surely await you in the lush green “Benjamin” lined valley known as Wall Street.”
Yes, all tongue-in-cheek, but is it really that far off? For those who think so, let me give you one last example of this “devotion to the Valley model” and you decide. Ready? Today, in Silicon Valley – LinkedIn™ – is still considered a stunning success. (excuse me while I finish laughing)
For those of you that bought into that “success” right before its stock value plummeted; prompting Microsoft™ to buy it (i.e., throwing stock-optioned employees a life savings lifeline) before it fell even further to where competitors may have been able to afford it? “Success” is not the first word that comes to your mind, 401K, or bank balance.
But in “The Valley” world – “remember the code” – is all I’ll say to that.
So back to where I started, and why the above needed to be stated for context, and it is this…
Suddenly, even Silicon Valley itself is beginning to question the once unquestionable. e.g., The valuation of its remaining unicorns.
To my eye, or acumen, this is very similar to that moment where suddenly a boss, a team leader, a company, ________ (fill in the blank) does that one thing, and everyone around them looks at each other and thinks “Wait…What?” Then begins questioning everything prior.
We’ve all been there, or had that moment. Silicon Valley I believe just had its own.
Over the month of July questions are beginning to be asked about not only the rate of unicorns being minted, but also the totaling amount that its current “top ten” stable mates are valued at. Here’s some data as reported via Pitchbook™. To wit:
However, it was this second point that seems to bringing with it the questioning of where everything may be going, again, to wit:
“WeWork’s latest round, a massive $760 million funding reported earlier this week, has increased the valuation of the co-working space provider by about $4 billion.”
What is getting everyone’s attention in “the Valley” is something I’ve been stating for years, only this time, it’s the sheer size of the claim, in one jump, that’s causing consternation within its once undoubting, ever-faithful, cheerleading pews.
Remember: Only in “The Valley” is it reported on, and accepted as an article of faith, along with a straight face; that a VC can turn a few $Million into a $Billion all based upon a standard of accounting equivalent to: “Because that’s what they say it is.”
Try saying that at your local bank if you’re trying to re-fi or buy a house. See how far you get. Yet, in “the Valley?” You may get “that loan” based on that “$Billion” stated on your balance sheet. Which is precisely why I bring this up.
Again, it isn’t the “accepted” math that was/is in question, (e.g., The alchemic miracle of accounting allowing $millions to now be claimed as $Billions) but rather, it was the size of this jump (e.g., $4 Billion) that the math allowed for, leapfrogging this company into the #3 position of all unicorns with a valuation of now $21BILLION.
Now, suddenly, eye brows are being raised. (To be clear: I’m not taking shots at those reporting these latest stories. I’m talking directly to the entire complex concerning Wall Street, main-stream business/financial media, along with the entire “Valley” apparatus at large.)
The issue in my opinion is – it’s too late. For this “unicorn’s” ability to prance into third place wasn’t ever going to be some sign of salvation for “The Valley” model. It’s quite the opposite. In my opinion: It’s the “fourth” equine maneuvering into position in the ever evolving “tech” apocalypse.
If one wants to draw similarities via the “Four Horsemen” (which I am) Twilio™ was the first sign, Snapchat™ the second, Uber™, its third, and WeWork™, I’ll dare say, just maybe the fourth. And the “scythe” is about to be put forth cutting down far more than just valuations as it unfolds. Look to the ancient scrolls of the dot-com era for clues.
Let me add this one construct as to why I believe the crossing or “investing” by VC’s into the unicorn club is not showing a sign of “strength” or “faith” in the current “tech” sector, but rather, resembles a last-ditch effort of desperation to keep that other article-of-faith alive because if that goes – so too does all their presumed wealth. e.g., Their own statements of net-worth.
Let me propose the following on you, and see what answers you come up with on your own. Ready?
If you had extraordinary gains currently sitting in an index fund (Oh, let’s use NASDAQ™ as a hypothetical shall we?) and you were a VC, or you just decided that’s what you want to now be: Would you not take some gains off the table in that fund, and put a few $million into some start-up that allows you to now declare you’re worth a $Billion or $BILLIONS?
Think about that very carefully, and come to your own conclusions. Never mind what I think.
Now with that as a backdrop let me ask you this…
Do you think unicorns crossing the $BILLION dollar valuation mark at a clip of 1 per week currently – in this environment, with what you’ve currently witnessed to those who’ve made it out of the stable, only to have its valuation slaughtered much more in line with a glue factory rather than a land of milk and honey: what would be making the argument (or giving the rationale) for one to invest $Millions when the most recent IPO’s are shedding $Billions a a frightful pace?
Again, think about it very carefully. What would you do? And why would you put that money at risk? Hint: The accounting alchemy of the Unicorn-verse.
And that brings me right back as to why I believe this latest “bump” in valuation and funding has caught even the once unquestioning faithful off-guard. And it’s this…
If you are a VC, or early holder in the likes of Uber™, or Theranos™, or Snap™ et al. And your personal holdings, or “valuation” seems to be taking a hit in the eyes of, Oh, I don’t know, let’s say: Your bank or brokerage account? And maybe you just so happen to have taken loans, or were awarded special financing deals that were only available per all that reported net worth “value.” How would you make up for that discrepancy?
Hint: Like the legend of turning water into wine – one appears to still be able (but it’s losing it’s once unquestionable status) to turn $Millions into $Billions via the unicorn legend, at a pace of about 1 per week.
But when you go for a quadrupling? That’s a 4-horse one should never have tried to ride, even in front of the faithful. Because even the “faithful” know or have heard of the prior apocalypse of legend. e.g., The dot-com era.
It’s all right there in the ancient scrolls. I think it even states: “And one of the riders was a sock puppet…” But that’s just from memory. But, we’re always told “it’s different this time”, right?
Well, it surely appears as such, for remember when using “The Four Horsemen” was evangelized as a good thing – until suddenly – they weren’t? For those who like to read the ancient scrolls of the dot-com era. Here’s a sample.
And for those who think making it out of the unicorn stables, and then running their valuations up at a full gallop past all those non-beleivers to the unqustionable land of $100’s of Billions in market cap affords some form of absolution from reprisal? Here’s a reminder, as well as warning. To wit:
But I’m told by the “faithful” Facebook™ and Twitter™ are different. As I always say…
We shall see.
© 2017 Mark St.Cyr