Lets Talk About Horses That Have a Horn Glued to Their Head
“Unicorns blah blah gloom doom bubble pop.” — Internet Analyst
There are a lot of companies right now making the news because they’re valued at what experts call “like, a lot of money.” It’s fun to call them unicorns and we all like a good label. It seems like everyone wants to answer the big questions: ARE THEY OVERPRICED? THIS MEANS BUBBLE NOW, RIGHT?
Without the context of the CEO/VC or a nuanced understanding of startup investing these valuations feel wrong. $1B+ companies are supposed to look like the big boys who have been around for 20+ years. They’re supposed to take longer than a couple years to stew. You’re not supposed to let low probability, high value outcomes dominate expected value guestimations.
“Dumb VC thinks Uber is worth more than American Airlines. No way, they have airplanes and stuff. What a dumb VC.” — Strawman Critic
It’s only natural for curious people to wonder if some unicorn tech company is really a unicorn. You know, worth $1B+. What if it’s really just a horse with a horn glued to it’s head?
What if so what.
It doesn’t really matter to investors if specific “unicorns” end up being worth their weight in Fairy Farts when investors diversify. I think that’s the thing that most people don’t internalize. If you own a stable full of horses with horns glued to their head and one real unicorn, your stable is worth at least the value of a unicorn. It doesn’t matter if you can’t tell which one is the real unicorn right now. If you paid less than a billion for everything then self congratulatory back-patting is in order.
Okay Jackass, How Do You Explain These Valuations?
We are better at building companies than we were a decade ago. And yeah, I happen to think there a few unicorns in the pack. I don’t care if there are horses, too.
It’s cheaper to start a business. Whip together some Rails code, barf it up to the cloud and scale it on Heroku. Stripe makes getting money easy. There are a million tools to help founders do foundery things like hire or pay taxes.
It’s cheaper to distribute your thing. Facebook, Product Hunt, Hacker News, and Reddit are great. We even have sales-spam-as-a-service companies to help you get customers. Startups can grow faster because it’s easier for them to get new customers. Mo money, mo rainbows.
We’re smarter about how to run companies. We have awesome bloggers like pg, accelerators like Y Combinator and larger communities where founders help each other out. Folks can spend less time making common mistakes and focus on making novel ones.
Enterprise companies are less uncomfortable with startups. IT is slowly adapting to the cloud while more tools get invented to help startups build non-clouded (grounded?) deployments. Sure, enterprise sales are a pain but it’s getting easier and there’s a lot of money in it.
More people are doing startups. It’s less culturally weird and there’s a lot of seed money to support a wide range of crazy ideas. Many are crap and there are a lot of clueless founders, but from the large numbers we find more potential unicorns. Or unibabies as I like to call them.
This Is No Longer Interesting
Indeed.
But neither is a pundit piece about how some specific company may or may not be worth some “outrageous” valuation. What matters to the investor is the portfolio and its combined expected value. If you make 10 stupid bets and one pays of really, really well you might be a genius.
