My client was a unicorn way back in 2008, before the present day meaning of the word was repurposed to mean private companies valued at more than $1 billion. Last time I checked, the company was worth about $10 million, a stunning loss of 99% of the company’s value. Here’s how the company’s 12 step descent went:
- Invent a new financial product.
- Validate the concept by putting personal capital at risk.
- Fearlessly try new ways to sell the product and show-up every day willing to reinvent the company.
- When when the right marketing mix that is found, make a huge, eight figure bet on it.
- When the concept is validated and profits are accelerating, bring in private equity investors as majority shareholders and expand the business further.
- Begin replacing the founding entrepreneurial management team with professional managers.
- Let the professional managers refine the company’s processes and practices such that they are “customary and reasonable” to reduce/eliminate any liability claims from future shareholders.
- Use the stable earnings of the company to take on nearly a billion in debt and use the bulk of the proceeds to pay dividends to private equity investors and others.
- Watch the founders get neutered then ousted by the private equity investor.
- Watch the private equity firm use its close ties to Wall Street to get a bulge bracket investment bank to take the company public.
- Months after the initial public offering, read a press release announcing a new strategic direction for the company.
- Watch the stock go into free fall as earnings swing from positive to negative under a massive debt load and management distraction.
The inflection point began at step seven in my view. Perhaps this was nobody’s fault per se. How could the company orchestrate a liquidity event with entrepreneurial skeletons in the closet? For all the other unicorns out there, maybe this offers a cautionary tale. Step eight? Perhaps some restraint. Step 11? The most egregious in my view because from the rear view mirror. Investment banks and private equity investors are all about the forecast, but in this case failed to see or acknowledge an oncoming train?