unicorn hedge

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Everyone in the press loves to write stories about the next “tech bubble”.

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Me too, baby. But they found stock signs, not on the horn.

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Of course, they all think they’ve seen this movie before—twice in fact, in 2000 and 2008. They think they know the script. They think they know the actors. They love the ups and downs of rollercoasters, and just like M. Night Shyamalan they love a big twist at the end… except the twist isn’t what they’re expecting. The real turning point will be in public markets, not private markets. And I’m not talking about tech IPOs, I’m talking about non-tech public company dinosaurs that have been hanging around for decades. They are about to be interrupted by a unicorn/comet.

It’s OK Gordon, I missed it too… Dammit Travis.

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The real turning point won’t be tech founders or investors who will lose all their money on the overpriced unicorns (though in fact, that will happen) – the real turning points are veterans, senior citizens, Fortune 500 CEOs and out-of-touch Gordon Gecko private equity “Barbarians et The Gate” beat like a drum twice as long as tech startups and VCs half their age and greedy.

Via multipl.com: P/E @ 10-20 last 100 years; 15-25 last 5 years

The real turning point is Wall Street finance being disrupted by Silicon Valley tech (and, too, by NYC and LA tech). The real twist is that the S&P 500 doesn’t realize that their average P/E multiplier should be ~5–10 instead of ~15–25. The real turning point is big oil and gas and automotive companies realizing their market caps are not only overvalued, but they will be zero in 10-20 years as electric power and autonomous vehicles become the norm. The real turning point is thousands of public companies bleeding billions in damage and value over the next ten years, like the demolishing of giant, slow Manhattan skyscrapers… except it can’t be that slow.

Old blondes interrupted about 2b…they look kinda upset. Introducing The Unicorn Hedge

This is why Unilever bought Dollar Shave Club for $1B. That’s why Walmart is buying Jet.com for $3B (though that may be a little desperate). That’s why GM bought Cruise for $1B, why they invested $500M in Lyft, and why they considered buying Lyft for $5B. Sure, it can be risky, but it’s no more risky than doing nothing and keeping your CEO job and expecting the stock price to rise. Hedging your public company stock by buying a potentially disruptive unicorn for only 5-10% of its market cap may be one of the simplest ways to reduce the risk of a startup and continue trucking… that’s the unicorn hedge.

Image via CB Insights

For those paying attention, unicorns and disruption are not news. You may have heard disruption predictions for the first time in the mid-90s, and you may have been skeptical after the 2000-01 dot-com crash. Leaving the Internet giants like Amazon and Google started in the 90s. And you may have been skeptical again after 2008-09, except that social platforms like Facebook and LinkedIn and Twitter and YouTube started in the mid-2000s (and also the second advent of Apple, Steve Jobs and the iPhone). .

Image via VisualCapitalist.com

No surprise, now most of the public tech giants are investing in and buying other tech startups and unicorns to stay on top of their game. Microsoft bought LinkedIn and Skype. Google bought YouTube and Android. Facebook bought WhatsApp and Instagram. In fact all the top 5 highest valued public companies in the last five years are tech companies. So what do you think is more valuable? Average Unicorn or Tech IPO? Or the average non-technical public company that hasn’t innovated in over a decade?

Even for those who haven’t been paying attention, ever since Marc Andreessen wrote “Software Eating the World” five years ago and the movie “The Social Network” became a blockbuster hit for millennials Smart people everywhere know that the next revolution won’t be television… Untethered, unplugged, and viewed on mobile phones running iOS or Android or Miui, and shared on Facebook, Snapchat or Instagram. Or maybe on some new multi-user immersive VR or AR platform like Oculus or HoloLens or Magic Leap or Minecraft. Or, perhaps even something newer from Seoul or Shanghai instead of Silicon Valley, delivered via a drone or autonomous vehicle, or via the Hyperloop. Innovation is no longer coming from NASA or Detroit, it is from Tesla and SpaceX, from Stanford and Berkeley, from 500 Startups and Y Combinator, from a garage in Bucharest or Bangkok or Bangalore, or from a startup accelerator in Mexico City, Istanbul or Lagos is coming. ,

There I was: That shit really happened, and it really sucked.

It is now true that technological bubbles do happen. However, it is also true that some of the most valuable companies on the planet were started around the same time. Lehman made a splash in the summer of 2008, after I got my first job in venture capital working for some PayPal Mafia affiliates at Founders Fund, which ran the FF Angel Program and the Facebook FBFund Incubator. Between fall 2008/spring 2010, I invested in 3 unicorns: Twilio, Credit Karma, and Lyft (then Zimride). The value of all 3 companies when we invested <=$5M था। सात साल बाद, अब तीनों कंपनियों का मूल्य>$3 billion has been reached.

my friends and fellow bald geeky Jeff LawsonFounder Twilio.

Now of course I haven’t only invested in 3 companies, I had to make lots of small bets in over 40 startups to be lucky enough to find those outsiders. Most of my investments failed, some had small exits between $5–25M, and some like SendGrid, TaskRabbit, and Life360 are now valued at over $100M (we call those companies Centaur). Another, Wildfire Interactive, was acquired by Google for $350M. And the most successful people turned into the 3 unicorns I brag about all day now (Twilio.) [NYSE: TWLO] just went public in June). Whether I was smart or lucky is up for debate, but regardless I’ve invested $3M on behalf of the Founders Fund in companies that are now worth ~$50-100M. Not bad for a rookie VC in the middle of a bubble, eh? I’ll take Lucky Over Smart any day. (Peter and Sean: Thanks for giving me a shot 😉

Hey DHH: How much do you think FB isn’t worth these days? I guess I still have to give UA beer.

As it turns out, most unicorns and many tech IPOs are probably overpriced, but some of them are actually undervalued as well. Remember when Facebook went public at a valuation of over $100B? And then fell like a rock to less than $50B in less than 3 months? And then grew like Rocketship over the next four years to about 7X after its IPO? Who would have guessed that this could happen?

2 sharp minds, different @ birth? bald is beautiful, baby

You’ll be happy as punch to buy FB at the IPO price, but you’ll be even more happy to buy it when it’s priced between $5B-50B in the private market. Just ask Yuri Milner, the founder of DST Global, who is arguably the godfather of unicorn investing. In 2009 Milner invested $200M in Facebook at a valuation of $10B, and everyone thought he was crazy. Turns out he was *mad* – like a fox! – And now Facebook is worth over $300B. Milner also famously made investments in a bunch of other late-stage tech companies, including Airbnb, Twitter, Spotify, Snapchat, and WhatsApp. Most Russians would claim first-man-in-space Yuri Gagarin as their hero, but my favorite Yuri’s last name is Milner! (Mr. Milner, please forgive meme joke, da?)

Of course sometimes the technology gets ahead of itself, and it’s rare that unicorns even turn to Facebook, but many people who accessed Uber or Airbnb shares for less than $5B a few years ago do so. Want to pat myself on the back for doing this. a smart decision. Surely, there will be a lot of unicorns that go to waste after receiving a lot of capital at very generous valuations, and many of those unicorns will have their horns cut off and sent to the glue factory. But some unicorns aren’t overvalued nor over-funded—some are the real deal, growing like crazy, and scaring bezzies from the CEOs of the non-tech public companies they’re competing with. Some might be lucky enough to become the next Uber, Airbnb or Twilio.

“No one comes out alive here.” – The increasingly crowded Unicorn Club via CB InsightsI *know* that I forgot to do something… what was it?

That’s why private equity and mutual funds are scrambling to figure out how to get into tech startups first and foremost, rather than wait until they go public later and later, until They don’t become worth billions. They don’t want to miss out on the value those companies created prior to their IPOs, or before they reach a unicorn valuation of $1B+. As larger investors realize this – private equity, mutual funds, corporate and sovereign wealth funds – they are jockeying to gain access to early-stage A/B/C rounds by investing in venture funds. Or, if they later reach the Series D/E/F round, they can get an allocation by investing directly in Unicorns. Private Market Unicorn is the new IPO. Whether the valuation makes sense or not, the demand for access to this new “stage” of capital is huge and growing.

In the end, we should see that this is definitely a global story, not just Silicon Valley or the US. This is why China is investing billions in its unicorns and Silicon Valley. This is why Tiger & SoftBank and Sequoia are investing in India/Southeast Asia and other emerging markets. This is why Saudi Arabia wants to take Aramco public at >$2T (Saudi Aramco is the world’s largest company by revenue), and convert all those oil and gas dollars into innovation and technology investment as quickly as possible. wants. That’s why the Kingdom’s Public Investment Fund invested $3.5 billion in Uber at a valuation of more than $62 billion, and is looking to do even more. Hello, Global Venture Capital.

Somewhere in the world, this Happy Hour @ 500 Startups

This is why every country on the planet is trying to imitate the Silicon Valley ecosystem instead of California or Beijing. There are now more than 3 billion smartphones worldwide, and many of those customers speak English – but many more speak Mandarin, Spanish, Arabic, Hindi or Malay. You can expect many unicorns to come from the US and China in the future, but others will come from Nigeria, Pakistan, Brazil and Indonesia. This is why 500 Startups invest in more than 50 markets around the world. We may be early, but we sure as hell won’t be late.

People doing business with the CEO of an old public company… they sound great, don’t they?

Summary: Expect more VCs, expect more unicorns. Expect more investment in startups and innovation, and expect more disruption.

To avoid this, expect the CEO of a more public company to spend some of their market cap buying a unicorn or two… Welcome to Unicorn Hedge.

(Next: Learn why buying 10 centaurs is a better strategy than 1 unicorn)

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