Pando

Watch Pando play "Fantasy Unicorn"

Or as it used to be called... “Unicorn”

By Sarah Lacy , written on October 20, 2015

From The What Kind of Play Has It Been Desk

CB Insights has a fun game making the rounds in our “HOLY SHIT!” times.

It’s a bracket of unicorns (see above) and a question: which you would invest in, given current valuations today and staring into what many assume is the gaping maw of a coming downturn?

We wanted to play and figured, maybe Pando readers might care who we’d vote for? The first round is over so I’ll comment on whether CB’s audience got things right. And then I’ll fill out the rest. I’m only going to comment on match-ups where I know the companies or founders well and have a decently informed opinion. (i.e. Exactly opposite to how I fill out a March Madness bracket) So if I skip a match up, that’s why. We’ll check back in in a few years and see how right we are.

Here we go! First round, the left side:

SpaceX or Magic Leap: Now that’s an unfair pairing. Obviously, SpaceX. You don’t bet against the greatest entrepreneur in Valley history. Elon Musk is only the second man ever to build three billion-dollar-plus valued companies. The first was Jim Clark and he needed the dot com bubble to do it.

Theranos or 23andme: Lucky pairing for 23andme! Both have had their shares of ups and downs, but obviously 23andme.

Eventbrite and Fanatics: I have issues with both, but Eventbrite. Nice recurring revenue stream, nice slow-building business and it’s a rare one on the list whose product I’ve used. I think the product could be better (paying all the total after an event for instance makes it unworkable for professional events companies or media companies who rely on ticket sales to put on a large conference). But they made the move to mobile well.

Docusign and Slack: Talk about another unfair pairing. Slack. How often do you see a viral enterprise software company? Slack has caught on in a way that Yammer, Asana and others just haven’t. And I give Stewart Butterfield points for admitting valuations are pretty much arbitrary, employing mostly older engineers who leave at 5 pm everyday, and his strides on disclosing Slack’s diversity stats. He’s built a distinctly non-bro/crushing-it culture and that will serve him well when the shit hits the fan.

Dropbox and Evernote: Here’s the first one where I differ with CB Insights readers. Current valuation? Evernote. Sure there is some uncertainty around it, but Dropbox is the deca-corn in a coal mine that everyone cites when they wonder how some of these companies won’t wind up having a down IPO. The ultimate example of how an otherwise successful exit could “feel” like a failure because the company’s valuations were just too heady.

Stripe and Square: Square by a (square) mile, even with the Jack Dorsey half-time factor. Square has flailed trying to figure out how it can be more than just a low-margin payment processor and is currently settled on small business software on top of payments. That is a brutal business. But it’s an answer. Stripe is a great company that developers love. But I have written for years that it’s out over its skis in valuation, based on everything I know about the company, and the company certainly doesn’t give us more answers to back its price up. At least Square has a valuable brand, a more differentiated offering, and discloses payment volume. Another one where I differ with the CB Insights crowd. Again: The key is at current valuations. At a smaller price, I might pick Stripe because I don’t think the Square IPO is gonna go well, and we’ve used Stripe for years –– it’s not a bad company.

Warby Parker and Honest: This is a rare one on the list where I’ve been a customer of both. I’d go against the CB Insights crowd and say Honest. You gotta be nervous about any ecommerce company valued at north of $1 billion, but Honest should be commended for starting with a limited premise and expanding out of it rapidly. That applies to its product mix – moving out of diapers and wipes to beauty, home goods, and lifestyle products. And it also applies to the way it sells. Subscription commerce was a nice opening gimmick, but the company quickly migrated to multiple channels. It is also the only LA subscription commerce entrant that successfully made the celebrity co-founder game work. Jessica Alba is engaged and always on message and on brand as the eco-friendly mom that customers aspire to be. Warby is great and all, but priced high and I think there’s less certain upside with a lot of competitors. I have no reason to be bearish on Warby, but I’m more bullish on Honest.

Uber and Lyft: Here again is a case where I’ve been a customer of both, but only threatened by one. You might assume that makes this a slam dunk. But as I’ve written before Uber has built possibly the most perfect business model of the on-demand era. This company has committed so many egregious acts that even a recent puff piece in Fast Company had to couch it as a guilty pleasure with its headline “Admit it, you love Uber.” UN Women found the brand too toxic to be near. That’s right: When it comes to women’s issues, Uber is the North Korea of startups. And yet, the company keeps growing. It’s the big tobacco of startups. They can do the worst things in the world and people keep using them. The only thing that could possibly slow Uber’s momentum is it’s risky $1.5 billion (and counting!) bet on China which it will not win. It’s less the loss of China itself – and more the astounding arrogance of the move that would make me pause if I were an Uber investor.

Meantime, I root for and use Lyft, but it just operates like a company that does not want to win this race. It’s the David that just won’t pick up the stone and put it in the slingshot despite a million Uber stumbles. If this were Uber versus Didi-- easy. But Uber versus Lyft? Well, I’ll still vote Lyft because Uber’s current valuation is predicated on world domination and Didi is going to win that battle in China, and maybe beyond. Lyft is valued comparatively rationally, and it’s hard to believe its business goes to zero. Also, it’s takeover bait for a global anti-Uber consortium or potentially a Google that gets deeper into transportation.

The most surprising thing? CB Insights readers agreed, also picking Lyft.

Instacart and Blue Apron: Another hard one, another case where I’ve used both. I weighed this one a lot the last few days and I have to say Instacart. The company has some issues. It’s not quite as usable as I might like, and there are some scale issues there. Stores are all too frequently out of things I order and there’s back and forth phone calls and substitutions that make the whole experience sound far less futuristic than it did originally. Bill Gurley singled it out as a troubled unicorn burning too much cash.

That said, it’s well funded and a category someone will win.

Blue Apron? Well months into testing all the “non-demand” food companies, Blue Apron has handily won so far. But it’s not clear there’s a sizable base of people that want this service long term. We’re already starting to toss food, because the novelty is wearing off.

ZocDoc and Oscar: ZocDoc easily. I admire Oscar, and it has a great business model and many positive proof points. But it’s priced high. ZocDoc has been admirably slow and steady. I think it’s one of the most underrated unicorns out there. And I can’t speak for Oscar, but the first time you use ZocDoc it’s a transformative experience. It’s the only place I book doctor’s appointments now. And Cyrus Massoumi is an underrated CEO. I like Josh Kushner a lot but nothing about his profile is underrated. And this is ultimately a battle of upside.

Airbnb and Houzz: I’m sure Houzz is a fine company, and I know it’s one that Sequoia is incredibly bullish on. But Airbnb, even with its inflated price. I think it’s one of the handful of very large potential independent companies of this entire crew. Its on-demand business model isn’t quite as luscious as Uber’s, because you don’t book multiple Airbnbs in one day. But the price is higher, and – unlike Uber – the concept is inherently global, not domestic.

WeWork and Jawbone: Tough one. I have big questions around each. WeWork obviously has some scaling issues we’re not used to in the bits world of Silicon Valley, but it seems to be a well run company with a shitload of assets and recurring revenue. Jawbone is a black box to me. I don’t understand how a company that had such a great lead in hardware and wearables couldn’t make a device that shipped on time and didn’t break. There’s also – fairly or not – blood in the water on Jawbone, and a sense that it’s in a spiral. That’s hard for startups to recover from when they aren’t worth $1 billion-plus. WeWork.

Gilt and JustFab: I’m gonna part ways with the CB Insights crowd again and say JustFab. The team are masters of direct marketing, and underrated in terms of cheaply acquiring customers. And that’s pretty much all that matters in ecommerce.

Vice and Buzzfeed: Ohhhhh! Toughest one of the lot. I love both companies and frequently describe them as the patron saints of the two journalism playbooks: Niche but valuable audience vs mass but still does great work. At current valuation, I’m gonna pick Buzzfeed. But I’m one of the few people who utterly gets the Vice price too.

Vox Media and Snapchat: Huh? Does CB Insights hate Jim Bankoff? That’s like bringing a knife to a gunfight. Snapchat all the way. Sure it’s priced insanely high – some $20 billion for common stock in a round closed earlier this year – but Evan Spiegel gets mobile product in a way almost no one else does. Now that they have a non-laughable business model and seem to backing away from Discover, I think it’s the lone shot to challenge Facebook in messaging, which as Mark Zuckerberg has noted is the only thing people do more than social networking. The more interesting match-up would be a deca-corn battle of Airbnb vs. Snapchat. Because those are probably the decacorns I’m most bullish on even at current prices.

Nextdoor and Tango: Nextdoor. I’m a big Nextdoor fan. I love slow and steady growth businesses that solve a real problem and build something that can’t be easily replicated in the world. It wasn’t easy to find a social network sliver that hadn’t been done yet, but Nirav Tolia did it.

Palantir and Cloudflare: Does CB Insights hate Matthew Prince? I love Cloudflare, but Palantir – and Peter Thiel [a Pando investor, incidentally] – are pretty hard to bet against.

Now onto Round Two...

Lyft and Instacart: Despite my above protestations, Lyft given both are valued around the same amount. If Lyft were a decacorn, it’d be a harder call. But Lyft has wisely controlled its valuation creep.

ZocDoc and Surveymonkey: Jesus, talk about two companies that have been built the right way and solve real problems. Hard one, but ZocDoc because if it keeps on keeping on, it’s potentially bigger and does more good for the world. In this market, ZocDoc is just a bargain at $1.8 billion.

Airbnb or WeWork: Easy. Even at more than double the valuation, Airbnb.

JustFab or Twilio: Twilio easily. JustFab beats Gilt, but ecommerce unicorns that stay unicorns are rare even today.

Buzzfeed or Snapchat: This is a debate within Pando-- especially given BuzzFeed’s arguable low valuation at $1.5 billion-- but I’m still going with Snapchat.

Kabam or Nextdoor: For reasons listed above, Nextdoor.

Lookout or Palantir: Palantir.

SpaceX or 23andMe: That’s just mean, CB Insights. (SpaceX.)

Eventbrite or FanDuel: Eventbrite. Mostly wishful thinking as I’m sick of those commercials. Also it’s a referendum on building a business by delighting customers year after year with a great product, and insanely high, quick-burn customer acquisition. I want to live in a world where Eventbrite wins.

Slack or Dropbox: Easy only because of the relative prices: $2.8 billion versus $10 billion. Slack.

Stripe or Zenefits: I think both are overvalued, but Zenefits. (And Zenefits is half a unicorn cheaper.)

Pinterest or Honest: Honest. To me, there’s way more upside. I’m sure I’m in the minority here, but I’ve never understood Pinterest. I don’t use it, and I’m sure it’s great but I don’t see it being a lasting, iconic company. Will it be larger than Honest? Probably. But it’s already valued at $11 billion.

Now I’m current with the overall voting. We’ll see how I match up with the broader public in round two. There’s some easy roadkill in round three, as companies go up against SpaceX, Airbnb, Snapchat, and truly underrated gems like ZocDoc.


Note: For round two, I went with my winners, not the crowd’s because I figured I was filling in a bracket the way you do for MarchMadness where your winners go up against your winners in next rounds, not the crowd’s. Otherwise you double eliminate companies and don’t have to make as hard of decisions between two winners. But my round two matchups, don’t totally match theirs for that reason.