Morning Markets: This post is late today as we recorded an extra Equity episode about WeWork. It’s out shortly, subscribe here if you are a Podcast Person.
Unicorns, once rare, are now legion. The capital hungry creations of the technology and venture-capital worlds are now a global phenomenon. Powerful, well-funded, and ambitious, the cohort of high-growth, private companies worth $1 billion or more have a lot of pressure riding on them to succeed.
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And so when they stumble, we take note. Indeed, Crunchbase News has been — I’d hazard — nigh-biting in its coverage of unicorn excess. (The sub-hed “Is Bad Corporate Governance Spelled ‘W-E-W-O-R-K’?” comes to mind.) We’ve hit on losses, slow growth, odd spending habits, layoffs, low margins, and more.
We don’t aim to be cheerleaders, in other words. Success is worth noting, as is failure, and we hope that we’ve earned your trust over the years to differentiate between the two.
All that said, I’ve caught wind of a sentiment amidst some in the media and general public that the WeWork fiasco is indicative of a general issue with unicorns. That the governance and financial catastrophes that the We Company managed to conjure up through a blizzard of capital are indicative of the broader unicorn cohort.
To which I think I have to say only kinda. It is fair to say that the current era of deep capital pockets, competitive rounds, and a general sentiment of founder-friendly terms has empowered founders and CEOs to put off things like profitability and normal corporate governance. But it’s not fair to paint every unicorn with the WeWork brush.
I think that because we’ve seen a number of high-growth companies go public this year that were pretty good (see Datadog and CrowdStrike). The implication from those debuts is that there is, at a minimum, a percentage of unicorns that are solid companies worth their private valuations. What we have also seen is the market react negatively to some companies that have less sturdy business models (SmileDirectClub could be an example), huge losses and slowing growth (Uber), and so on.
If the markets fell apart tomorrow, some unicorns would die, some would be forced to downsize and endure, and some would be perfectly fine. The year 2000 this is not, even if there is excess in the market and there are valuations out there that make no sense.
Many unicorns are overvalued, some are undervalued, and some are utter jokes. But let’s be nuanced in our censure.