Zombie unicorns are haunting Silicon Valley

We need to stop pretending the VC valuations are meaningful.

It's like asking someone playing roulette to value "13 black", after they bet on it.

There valuations are always based on expectations of huge growth, not current value. Growth predictions with an extremely low confidence level. VCs make up for it by making a lot of bets.

The companies NEVER have current profits (The actual measure of value) that would justify their valuation.

So, it's comparing gambling payouts to corporate valuations, aka "apples to oranges", which are not related.

When the predicted growth doesn't occur, the companies valuation becomes based on its actual value (profits).

Cameo (an example in the article) is an interesting one. It seems like a stable, steady business, making money, should be easy to accurately value if you have access to the financials. No surprise that the "It's $1bn!!!" valuation came from Softbank Vision Fund. https://en.wikipedia.org/wiki/Cameo_(website)

Companies being devalued is not news. It happens on the stock market everyday.

For companies that rely on outside investment to survive however it can become a slide to oblivion.

If the company itself is profitable, then typically it can continue. There's no interest rate on VC investment, and if profitable it can run forever. Customers, employees, users and so on are all fine. Investors? Well, they're potentially getting some returns through dividends, but its minor and not what they were chasing.

Of course the VC investment model is high risk. That's kinda the point. It's a bet on IPO or (valuable) acquisition. Most companies end up as neither.

Will this affect new VC funds in the future? Maybe in the short term. But there are still enough IPOs (like SpaceX now) and still enough greedy people willing to play the lottery. Sure the absolute amount of VC money may come down, but I don't think the model is going away.

Indeed it may start to lead to saner valuations along the way.

My impression is a lot of these companies raised mega rounds right before interest rates went up, and are now able to tread water by cutting headcount enough that their revenue + interest can sustain them. To what end? Who knows...

Zero interest rates kept many weak companies alive but they also have give great companies time to find product market fit, and the hard part is to separate the two in hind sight

Why post a link that people have to pay to read?

Same article:

https://www.businesstimes.com.sg/opinion-features/zombie-uni...

Zunicorn

Zune-icorn?

Zombicorn!

I know of some actual in use Microsoft Zune that have outlasted many companies that were predicted to become unicorns.