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. Today, the company is worth about $30 million, a loss of 97% of 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.
- Get 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, it looks a lot like like a willful abuse of public trust.