4 ms·

Yet another "UNICORN". The VCs that are funding this company and its ilk are signing deals that immensely limit their downside potential and max their upside. T

by ogezi 11y ago

Yet another "UNICORN". The VCs that are funding this company and its ilk are signing deals that immensely limit their downside potential and max their upside. The liquidation preferences, participation rights and antidilution rights the VCs have are very good for their interests. It's truly a pity that when the market conditions change and the money streams dry up, the founders and employees of these companies will have almost nothing. This bubble seems worse than the last one because by now you'd expect people to have learnt their lessons.

tdylan 11y ago
What data do you have to support these conclusions?
S4M 11y ago
>The VCs that are funding this company and its ilk are signing deals that immensely limit their downside potential and max their upside. How does that limit VCs' potential downside? Of course if the company gets acquired for a good price, they'll get their money back and then some, but for that there needs to be a big co acquiring the company for a large price, which will be hard to find. On the other hand, if the company bankrupts, VCs get nothing. I'd say that at this level of funding it's IPO or nothing for the VCs.
- ogezi 11y ago
  Another thing here is that these companies are getting valuations that imply that they will have very high margins in the future. But some of them will not be able to make good revenues without having MILLIONS of users. They will have to compete against themselves (eg. postmates, doordash et al). Simply put it's not remotely possible for most of these businesses to exist together and have such high valuations. These companies will make their respective markets as competitive as the airline industry (which has so many players but have such squeezed profits). The companies are being valued like they'll be monopolies or duopolies someday, but the fact is that they are in businesses that have relatively low points of entry. My problem is not that X1 has a #1B valuation, my problem is that X1 has very similar competitors X2, X3, X4, ... Xn (where n is any number of competitors) that also have very high valuations in a market that cannot accommodate even a few of them. In some cases they have valuations that equal the total size of their addressable market. This is insane.
  - S4M 11y ago
    I would rather agree with what you are saying there, but I don't see what it has to do with your original comment, where you said "The VCs that are funding this company and its ilk are signing deals that immensely limit their downside potential and max their upside. " For me, when I read about a company that got X0$M of funding, my first thought is often "Holy shit, what are they going to to with all that money?".

by ogezi 11y ago

tdylan 11y ago

What data do you have to support these conclusions?

S4M 11y ago

>The VCs that are funding this company and its ilk are signing deals that immensely limit their downside potential and max their upside. How does that limit VCs' potential downside? Of course if the company gets acquired for a good price, they'll get their money back and then some, but for that there needs to be a big co acquiring the company for a large price, which will be hard to find. On the other hand, if the company bankrupts, VCs get nothing. I'd say that at this level of funding it's IPO or nothing for the VCs.

ogezi 11y ago
Another thing here is that these companies are getting valuations that imply that they will have very high margins in the future. But some of them will not be able to make good revenues without having MILLIONS of users. They will have to compete against themselves (eg. postmates, doordash et al). Simply put it's not remotely possible for most of these businesses to exist together and have such high valuations. These companies will make their respective markets as competitive as the airline industry (which has so many players but have such squeezed profits). The companies are being valued like they'll be monopolies or duopolies someday, but the fact is that they are in businesses that have relatively low points of entry. My problem is not that X1 has a #1B valuation, my problem is that X1 has very similar competitors X2, X3, X4, ... Xn (where n is any number of competitors) that also have very high valuations in a market that cannot accommodate even a few of them. In some cases they have valuations that equal the total size of their addressable market. This is insane.
- S4M 11y ago
  I would rather agree with what you are saying there, but I don't see what it has to do with your original comment, where you said "The VCs that are funding this company and its ilk are signing deals that immensely limit their downside potential and max their upside. " For me, when I read about a company that got X0$M of funding, my first thought is often "Holy shit, what are they going to to with all that money?".