Remember back in days of yore (pre-2015) when a new year celebration, or any celebration or extravaganza for that matter, would pale in comparison to a “it’s different this time” funding round after-party?
You remember don’t you? This was where being on the “guest list” or “invite” was the equivalent throughout Silicon Valley as a red carpet event was in Hollywood. Of course, all the free-flowing bubbly and more would be paid for via those “funding rounds.” But hey, who needs to watch the bottom line when there isn’t one to begin with, right? Remember the mantra: “It’s different this time.” So party on and party hard, business can wait and is so – old school.
So how will this years new year celebration be rung in for the Unicorn set? Hint: Bring out the crying towels, because, it is indeed – different this time.
This year is culminating with an event which for all intents and purposes proves that the faithful have lost their faith. That event is none other than the most over-valued, over-rated, over-hyped, over-_______(fill in the blank) unicorn known as Uber™ penning its deal with SoftBank™, which purportedly cuts it valuation by some 30%. Or said differently – by about 1/3rd. And that’s if you believe the metrics and math used to begin with.
Supposedly there is some form of accounting alchemy that will allow a portion of the “investment” to be applied in such a way that the original near $70 BILLION valuation metric can stay intact. i.e., It’s probably not lying in a legal sense. But everyone knows its pure bull. From my purview this same reasoning would allow me to openly cite that land in Kentucky I’ll sell you is truly oceanfront – you’ll just need to wait for the full effects of climate change to evolve as to see it. But it’s not like I’m lying, right?
Now some will argue (especially any next-in-rotation fund manager, or Silicon Valley aficionado paraded across the main stream financial media) that this latest investment proves that there is a worthy, worthwhile business in Uber. Maybe there is, maybe there isn’t, but here’s what we do know, which is far more telling and far more prophetic in my view:
Softbank was looking to purchase somewhere around a 14% stake. So to entice current shareholders that were supposedly “holding out for the big IPO pay-day of riches” they offered a price of $33 per share, in the hopes that this would be enough to possibly bring on board some of those holdouts. It would appear they could have offered less. Why?
As being reported by the Wall Street Journal™ “people familiar with the mater” said the tendered shares offered (you know, at almost a 1/3 discount) totaled around 20%. That implies not only was there no need to possibly further incentivized, or pry any shares from true believers cold clinched hands, but rather, there were more willing sellers (e.g., more offered) than what was required for the deal. i.e., SoftBank only needed 14%, but had 20% available (at nearly 1/3rd off!) or offered for sale. SoftBank implied it’s going to leave that remaining 5% on the table.
If you’re still a “it’s different this time” true believer: Can you say, “Uh, oh?” Because if we use math as it is intended, that means, or one can infer, that SoftBank is leaving 25% of the available shares that it could have purchased – on the table.
Remember, it (SoftBank) thought it was going to have a hard time getting that 14%, this was why (all conjecture) the $33 per share was offered to begin with, as to hopefully tempt any possible on-the-fencers.
But temp it did! So much so that it was oversubscribed to the sell-side by some 25%. Talk about it’s different this time. So much for any remaining faith remaining in the faithful of an IPO to riches for this once most valuable private startup, is it not? After-all, this latest “investment” slashes Uber’s valuation to less than it was said to be worth in 2015. (i.e., $51B, 2015 – $48B today.)
I made the statement back in May of 2016, “If everything is so great. where are the Unicorn IPOs?” This was met via “The Valley” and nearly every so-called “tech aficionado” or next-in-rotation fund manager with derision and more across the mainstream business/finance media channels. I was of the “doesn’t get tech” crowd and was to be laughed off, or maligned for ever daring to question the unicorn or “it’s different this time” religion which had pervaded any remaining business sense or ethics.
But everyone seemed to forget then at the end of 2014, Quantitative Easing ended. And when 2015 began it was being touted as the year for both the rebirth of Unicorn’s and their IPO’s. And then it was 2016. And then 2017. And now we begin 2018.
The difference this time for unicorns is this: Not with hope. But rather, to face what I said was inevitable in 2015: “Crying Towels”
The reasoning is simple, and for those in “the Valley” who like it said best in pictures, here you go. To wit:
In 2015 depictions of Venture Capitalists went cartoonish – literally.
In 2016 the IPO to save the IPO world, Twilio™ debuted – then subsequently died – literally.
Then for 2017 it was the ultimate mascot for any-and-all remaining “it’s different this time” devotees to prove to the world that in fact, it still was, with Snapchat’s™ IPO – then – it all snapped – literally.
Yet, what is far more troubling which should be carefully, thoughtfully contemplated by all continuing to belive in the charade that is “The Valley.” I offer you the following to ruminate…
Over the course of the last 12 months the “markets” have never – in all its history – seen levels of such low volatility, for so long. In fact, the markets have also: Never had one full year of 12 consistent, back-to-back winning months. Again: 2017 did not have one, repeat, not one losing month. And, closed the year at heights never before seen in the history of markets.
And the most lauded, valuable, watched unicorn – in the history of unicorns – not only didn’t IPO – insiders sold their shares at a 30% discount – and the offering was oversubscribed to what was need. Or said differently…
It’s over, just like 2017.
© 2017 Mark St.Cyr