From Unicorn To Unicorpse In 12 Painful Steps

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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.  Screen Shot 2015-12-21 at 9.00.45 AM

  1. Invent a new financial product.
  2. Validate the concept by putting personal capital at risk.
  3. Fearlessly try new ways to sell the product and show-up every day willing to reinvent the company.
  4. When when the right marketing mix that is found, make a huge, eight figure bet on it.
  5. When the concept is validated and profits are accelerating, bring in private equity investors as majority shareholders and expand the business further.
  6. Begin replacing the founding entrepreneurial management team with professional managers.
  7. 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.
  8. 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.
  9. Get ousted by the private equity investor.
  10. Watch the private equity firm use its close ties to Wall Street to get a bulge bracket investment bank to take the company public.
  11. Months after the initial public offering, read a press release announcing a new strategic direction for the company.
  12. 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. read more

What does Jack Dorsey see?

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At this point, I’m not sure.

Not to say that Mr. Dorsey will not earn his place in the pantheon of Silicon Valley legends.  He will.

What I’m less sure about is his understanding of the capital markets.   So after taking Twitter public, is he going to take mobile payments company Square, public too?

My read of Twitter’s income statement and balance sheet indicates they have not used the proceeds from their $1.8 billion IPO efficiently (or even completely).  Research and development expenses went from $594 mm in 2013 to $691 mm in 2014.  Marketing expenses went from $316 mm to $614 mm.   Even though Twitter posted a $577 mm loss in 2014, on a cash basis, its operating activities threw off $81 mm in cash. read more

FANG Today, Toothless Tomorrow?

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FANG stands for Facebook, Amazon, Netflix and Google.

The term, emblazoned on the front page of yesterday’s edition of USA TODAY, was popularized by CNBC’s Jim Cramer.

Some think the FANG clan is unstoppable, and looking at the trajectory of technology and commerce at this moment, it’s hard to see the dominance of these companies ever waning.

But many may remember the portmanteau Wintel as well, which referred to the total dominance maintained by Windows (as a proxy for Microsoft) and Intel.

Wintel had meaning inside the tech industry, but in the early 1990s among investors it represented the duopoly that was a ‘must have’ in any growth oriented portfolio. read more