There is more to life than blitzscaling
to go unicorn spotting, take a turn around the brand-new park on top of San Francisco’s Transbay bus terminal. This is not because it is perched on a spectacular, undulating building that itself looks quite like a mythical beast nor because its tastefully planted flora, all native to flower-power California, offer a particularly enticing equine habitat.
The ideological analysis is an odd combination of cornucopianism and constraints. First, the plenty. The Valley believes that “software is eating the world”, and that there is still a lot of the business world for it to eat. As atoms are replaced by bits—or, more prosaically, possessions and activities by convenient services ordered through screens—it becomes possible for industry after industry to be disrupted by startups.
Yet while the production of unicorns gathered pace and slickness, their disposal did not keep up. The rate at which venture-backed companies move on to the public markets has slowed. In 2013 the average age of a venture-backed American company putting on anOne reason for this was regulation. After the dotcom bubble burst, new rules intended to protect investors, particularly the Sarbanes-Oxley Act, made going public much more burdensome.
If all this dearly bought growth has not supplied profits, what will? The unicorns have three answers: yet more growth; more spending by existing customers; and higher margins. The first is not necessarily that plausible. Among the companies in our panel that disclosed the number of customers they have in America, growth slowed to 9% last year.
None of this necessarily means they are bad businesses. But it does make them look like very pricey ones. All told, thevaluations the companies in our panel have received or are apparently looking for add up to $350bn. Based on a discounted cashflow model, in aggregate the dozen firms will need to increase their sales by a compound annual rate of 49% for ten years to justify that valuation. That is the same as the average growth of Amazon, Alphabet and Facebook in the decades after theirs.
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