The Cost Of Unicorn Disruption: Why F500 Companies Should Learn To Invest Earlier
Abstract: the press and institutional investors have been trying to prove there is a bubble in tech for years, however it hasn’t happened (yet). In the mean time, startups continue to raise capital, drive innovation, and disrupt industries. Venture capital firms across the nation are positioned for major growth as thousands of startups aim to break the foundation of every existing public company.
A unicorn is a start-up company valued at over $1 billion. Canadian tech unicorns are known as narwhals. A decacorn is a word used for those companies over $10 billion, while hectocorn is the appropriate term for such a company valued over $100 billion.
F500 companies are beginning to notice a bull in the startup arena. In traditional tech, companies would first experience the hypergrowth effect, reach unicorn status, and then go public. So, if you missed out on the pre-IPO round of funding you could still win big after the company went public. For example, if you had invested $1k into Netflix back in 2002 at its IPO date, your investment would be worth around $85k today. Now, however hundreds of private investors will not only miss the opportunity to invest in companies like Uber and Snapchat, but if they do go public the initial investment price may be far to high for most folks to make a significant profit.
With companies such as Unilever making major acquisitions into the startup space [$1B acquisition of Dollar Shave Club], CEOs are starting to take note that buying a pre-IPO startup or unicorn can do wonders for their stock price. GM recently made a $500 Million dollar investment into Lyft, an on demand transportation service similar to Uber. GM claims it has plans to partner with Lyft to develop a system that could have autonomous cars appear at customers’ doorstep.
Aged CEOs were not initially hired to understand the competitive market of tech disruption.
The public and private markets are reaching a period of major acquisitions and capital deployment. Aged CEOs were not initially hired to understand the competitive market of tech disruption. F500 companies are now forced to adopt a holdings company business model and pivot their initiatives to major capital infusions or 360 acquisitions of digital competitors.
On the contrary, there once was a time when a startup had the dream of going public and cashing out on their billion dollar payday. Now….a billion dollars is simply an acquisition away. Beats Electronics, famous for their headphones Beats by DRE, took the company to an acquisition by Apple that led to once rapper Dr.Dre boosting his net worth to $800M. Apple purchased the company for $3B back in 2014. No IPO necessary. Verizon has also made huge steps to pivot into the content and technology arena. Recently their acquisition of Yahoo’s web properties to accompany their earlier purchase of AOL makes them a prime competitor to Google in the ad space.
Most of the now-public tech giants are investing in and buying other tech startups and unicorns to stay relevant in the tech space. Microsoft bought LinkedIn and Skype. Google bought YouTube and Android. Facebook bought WhatsApp and Instagram. Facebook also made an attempt to purchase snapchat however the deal was declined. Uber, just announced it’s acquisition of Canada based logistics automation company Otto. The company also focuses on commercial vehicle automation. The deal is estimated to be worth about $680 million. In the past five years ALL of the top 5 highest-value public companies are tech companies.
Major corporations will need to learn how to invest in their digital competitors at an earlier stage to avoid paying a higher premium or $1b+. For example, Walmart just closed a deal to acquire Jet.com for $3 billion dollars. If Walmart had been watching the e-commerce space ahead of time, they may have been able to buy a huge chunk of the company at a smaller price point.