Pando

Congrats! Snap becomes the first decacorn to successfully IPO. But will any of them grow into Super Unicorns?

By Sarah Lacy , written on March 2, 2017

From The IPOs Desk

So finally, today we have it. One of the handful of “decacorns” in an unprecedented era of late stage capital, escalating private valuations, and endless stalling has finally, finally gone public.

And -- as predicted-- Snap has done well. It priced high, and popped on the opening, prompting the flurry of posts about how much money it had left on the table in retrospect.

Once the yellow banners are taken down from Manhattan, and the Spectacles vending machine is sent back to wherever it’ll be sent back to, the first decacorn will be a publicly traded company -- warts and all.

Sure, the economics are ugly on the IPO, as so many people have detailed. Sure, it lost half a billion dollars last year, and warns it may never make a profit. Sure, it’s future is dependent on innovations to keep teens hooked-- innovations it can’t even predict right now-- and TV advertising money finally flowing online. Sure, it’s being compared to Facebook, despite an early attempt to spin itself as the Facebook alternative, and that’s never an easy comp. Snap’s IPO price is 55x revenue-- more than double Facebook, and Facebook had a profit of $1 billion at the time.

But credit to Snap: It actually made it out at a price that seems to have justified it’s nosebleed private capital valuation. No one expects Dropbox will. I’d be stunned if Pinterest did that. And Uber is certainly not looking like it’s worth $70 billion right now. Airbnb seems the best positioned next to Snap.

Its an open question: Will any other consumer decacorn pull off what Snap has today? An IPO that isn’t effectively a down-round?

Assuming these group of companies does make it to a public offering… then what?

Will the era that defined itself by nosebleed private valuations actually yield a super unicorn?

A super unicorn, defined by VC Aileen Lee, is a company worth more than $100 billion. There’s typically one to three created per decade-- roughly each venture capital cycle.

The explosion of the Internet in 1999 yielded a few… at least for a time. The early “homebrew computing” PC era yielded Apple and Microsoft, obviously. The early days of “software as a service” yielded so far “only” a $50 billion winner in Salesforce. The social media/ user generated content era yielded just one super unicorn: Facebook.

So far, becoming a super unicorn depends on going public-- at $70 billion Uber has set a private valuation record and it comes up short. And so far, it is hard to imagine any of the current crop of decacorn hitting the mark any time soon.

That’s sort of stunning if you consider the explanations that we’ve had up until now for the unicorn era. That the advent of the iPhone, the global market opportunity via smart phone and software eating old industries like groceries and trucking was simply a bigger market opportunity that Silicon Valley had ever seen, and hence it was rational for some 150 companies to be valued at north of $1 billion, even though only 240 venture-backed companies have gone public, for any amount of money, in the last decade.

The hope was that that opportunity would crush any normal historical baseline of venture capital returns. A new new economy, if you will.

And just like the original “new economy” that’s not all bullshit. Just gargantuan companies like Amazon and Google and Facebook came out of the desktop Web, so too must gargantuan companies come out of the mobile Web…. right?

So why do the current crop of decacorns look so weak? Is it possible the most highly anticipated, highly priced generation of startups is the first that doesn’t yield a super unicorn?

Let’s take out ones like SpaceX and Palatir that aren’t consumer-facing, and look at how the rest of the crop is doing so far.

Uber: Uber was supposed to be the super unicorn of this era. In terms of private valuation, it’s the closest. And yet, that valuation has been set by places like the government of Saudi Arabia, not a market of investors who have looked at the company’s numbers. And it was before this year’s chaos.

Back in 2016, 73% of techies feared Uber was overvalued, before #DeleteUber and before the recent sexism scandals. Uber CEO Travis Kalanick has already said self driving cars were “existential” for the company to get right. And given the war for talent in that space and the reputation of Uber as a place to work, that’s anything but certain.

That valuation was originally predicated on global domination, which has failed. But more worrying, are questions over whether Uber’s underlying business model works without subsidies.

Uber is a company that’s already facing the inflection point in self-driving cars, like the one Facebook faced trying to go from desktop to mobile. Facebook pulled that transition off by spending some $20 billion in acquisitions. Uber can’t do that as a private company. But right now, an Uber IPO would be ugly.

And that’s before you consider how many people are openly calling for Kalanick’s resignation. Maybe Uber pulls its shit together and gets through all of that and beats the 20 other companies gunning after self driving cars. People desperately hoping that’s true bring up Amazon’s many years of horrible economics. But it’s anything but a sure thing.

Snap: As I said, Snap has already pulled off what everyone else on this list hasn’t: An IPO. But Snap has also said it never will be the size in users that Facebook is, and it hasn’t excelled globally, where locally oriented copy cats have flooded the market.

Instead of sheer jawdropping numbers of users, Snap is arguing the demographic of its users is what makes it so valuable. But there’s are two problems with that if Snap wants to become the super unicorn of the era. The first is some evidence that its user growth is being driven by older users. The second is that means Snap is in the fad business.

The only super unicorn that I can think of that did well by being in the fad business is Apple, and hardware has a way bigger defensive moat than mobile software, and longer cycles of being “cool.”  

Barring some major Facebook-like acquisitions, it’s hard for me to see how Snap breaks above $50 billion in valuation. (Which is, by the way, a gargantuan accomplishment, and may well position it ahead of anyone else on this list.)

Airbnb: I’ve argued before that I believe Airbnb will wind up being the largest and most defensible company of the “on demand”/sharing economy wave. Compared to Uber, it has taken a more rational approach to fundraising, valuations, and international expansion. We know its business model works: It’s profitable. It’s been the subject of scandals, but none on the level of Uber’s and none that have called for the CEO to step down.


And unlike Uber, Airbnb is actually a network effects business on a global scale. It is not a commodity business. There is no “Lyft” to Airbnb, no second company that has the exact same inventory at the exact same price. That protects its business model.

Airbnb’s recent fundraising indicates it isn’t going public anytime soon. When it does, I think it has the best shot of any of these companies of doing what Snap did today: Raising money at higher prices publicly than it did privately. But can a new kind of hotel company become a $100 billion super unicorn?

It feels like it would have to significantly expand its business into flights and other travel services to get anywhere close.

Dropbox: It’s no secret Dropbox has struggled, that it’s cut its cash burn, that its wavered in what exactly its product road map is, and it will have a hard time convincing investors that its multiple should be much different than the already public Box.

I’ve said before, that Dropbox should go now and get it over with. But most people expect it will struggle to earn its private valuation, let alone even be in the super unicorn conversation.

Pinterest: I’ve argued before that Pinterest looks to me like a private Twitter. Struggling to grow users, struggling to get international, struggling to innovate much, despite it’s recent real world visual search.

It certainly lacks the heat, youth, or sex appeal of Snapchat, so it’s hard to see how it commands a premium valuation.

Flipkart: Flipkart is leading an overall disappointing crop of Indian startups, struggling mightily against Amazon and against its own dysfunction.  

Didi Chuxing: Didi is already the largest ridesharing company in the world by rides, and I predict it will be by market cap one day too. If any ridesharing company ever gets to $100 billion in size, it’ll be one dominating a market like China, where the density, scale and need is so much greater than anywhere else. Already, Didi is not just big because of China, but by China standards as well: It’s the second largest e-commerce platform, after Alibaba.

This may be the only one on the list, that I could see easily hitting super unicorn status, both because of its execution to date, its global ambitions, and the market itself.

Xiaomi: It’s valued at around half of a super unicorn now, and smartphones sales are already starting to slump, calling that valuation into question. But unlike others on this list, at least the business opportunity backs up the potential for building a company of that size.  

WeWork: WeWork is a mystery to me. I don’t understand how it’s continuing to raise the rounds it is raising. I don’t think it’s concept is as globally universal as it pretends, and the company seems to have a smaller version of Uber’s cultural issues. I don’t see it going public at the current valuation, let alone ever being in the super unicorn conversation.

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Having looked at each decacorn’s super unicorn potential, a few things seem clear. The first is that the super unicorn of this era is more likely to come from China than the US-- and that represents a giant global sea change in the tech world.

There also seems an underlying culprit in why these companies may not achieve that elusive valuation: The continued dominance and existence of the super unicorns of earlier eras. Uber’s greatest threat (other than itself) may be competing with Google for self-driving cars. Snap’s may be the constantly copying Facebook, or the existence of Facebook itself as its Wall Street comp. (See also Pinterest.) Flipkart has been brutalized by Amazon. And a good deal of the uncertainty around Dropbox is also competition from Google and Microsoft.


Perhaps all those VCs who argued this new wave of tech warranted larger valuations because the opportunity was so great were right. It’s just the big companies that will reap the bulk of those rewards, not the startups.