- Tram Ho
Over the past year, startups around the world have witnessed one shock after another. The beginning was the collapse of bike rental startups in China and the culmination of the WeWork scandal.
WeWork, Lyft, Uber, Peloton: For the first investors, these are the companies that will change the way the world works, travels, trains. For stock market investors, these are the “sky-high” priced companies and real questions about when they start making money.
These two views become conflicting this year, the most catastrophic we can look at the case of WeWork. After the failure of the previous IPO, the company was saved by Softbank – also their largest investor.
At the time Softbank “saved”, the value of Wework was about $ 7 billion – way too far from the $ 47 billion that the company was valued in January this year.
Wework is perhaps the most typical wake-up call that mass market investors send to well-known start-ups that “burn money” and can’t make a profit forever. Unfortunately, Wework is not the only case.
Last year, Jibo – the world’s first home robot began to show signs of “dying.” At first he had memory problems. It spends less time working and instead sits idle on the wall. The problem related to its perception also became very slow. At that time, Jibo made a self-diagnosis with its situation: “The server used to help me work was about to be shut down. Once that happens, our interactions will be limited”. Jibo is about to die, simply because the company that developed it has stopped trading.
The death of Jibo shocked many people – especially those who had to spend up to $ 900 to buy it! Perhaps the hosting company closed the server after a few years of operation? That’s right, the amount of investment of 70 million USD they received was out!
Users of Picturelife – an image storage service have fallen into plight. The company announced in 2016 that it would temporarily lose all its customers’ images because they could not pay for cloud storage when it fell into bankruptcy.
Across Wall Street and Silicon Valley – home to the world’s largest companies, the value of unicorns – startups valued at least $ 1 billion are plummeting.
Since the IPO in the spring, the market value of Lyft and Uber has dropped by $ 40 billion and are both trading below the IPO price. Some other companies suffer the same fate. SmileDirectClub is trading at less than half the IPO price and Peloton is about 23% lower.
And since 2011, one-third of startups worth $ 1 billion or more have valued the company before the IPO is lower than the last call. A year later, nearly 40% of IPO unicorns were priced at less than their final private market value.
Even before the WeWork scandal spread, their difficulties in IPO also revealed that some investors initially had to reduce the value of their investments. In recent weeks, Golman Sachs and Jefferies, a smaller investment bank, had to reduce their stake in WeWork by about US $ 80 million and US $ 146 million respectively in the third quarter.
Some investors who have poured money into the world’s most valuable startups are also struggling. An investment from 2017 in Lyft by Fidelity valued the company’s stock at $ 47.35, while Toyota’s investment in Uber last year valued the company’s stock at $ 48.77. .
But, according to Friday’s session, Lyft shares were trading at $ 44.54 while Uber’s similar figure was $ 32.71.
All of this shows the harsh reality of the investment bubble preparing to burst after the private market receives huge capital. Behind that craze, it was largely due to the fear of missing out on companies that could change the world after Google and Amazon.
Even companies like Fidelity and T. Rowe Price – which primarily invest in public companies, have started taking part in funding rounds for private companies. Many of them make huge stakes in a single company, notably Softbank.
SoftBank’s Vision Fund is a symbol of excessive capital investment, basically too much cash. Softbank’s model is to capitalize on the private capital market as a way to kill competition in cash. For example, Softbank has made many rounds of investment in WeWork and after each round Softbank will buy more of this company’s stock, at a higher value. WeWork will thus be priced higher, to an unbelievable level of $ 47 billion because Son said that the company is more valuable, not based on any actual basis.
According to CB Insights, a company that tracks private companies, venture capital funds splashed out for startups with more than $ 207 billion last year, nearly double the amount of global investments in peak period in 2000. Over the past 6 years, companies have raised US $ 550 billion from private funds, surpassing the US $ 320 billion raised through IPOs in the same period.
The money that is poured into a lot of capital is not the problem. The problem is that the money comes with tremendous risks. Private companies mean they will grow without the scrutiny of public investors – no quarterly financial statements or the pressure to prove they’re finding ways to be successful. The company is profitable.
“These companies are still immature. Growth is not measured by the number of years that exist but it is measured by whether you can make money. That’s the real maturity,” an expert said.
Not to mention, startups get invested quickly after a few rounds of calling for investment and then fall into complacency, or launch inefficient business projects, or run out of ideas, losing people. the.
The biggest pitfall of today’s startups lies in the title of “unicorn startup” when it hits the $ 1 billion valuation mark. For young companies, getting enough capital to reach the $ 1 billion valuation milestone is one way to show customers, employees and the world that they are special, too big. and too valuable to fail.
Such companies run the risk of being caught between the billion dollar company’s glory and almost unattainable expectations. The startup’s recession may not happen in a few months but a few years, sometimes a decade.
Not only in 2019, but CB Insights statistics show that since 2015, there have been many such collapses, only in 2019, there was a huge explosion. Some of the names from earlier may include names such as Shazam – music identification application, Honest Company – the company provides safe consumer goods in the United States. Other companies that have been forced to lay off employees include Clover Health (providing health insurance), Udacity (online learning) and Instacart (grain delivery from local farms).
Witnessing the collapse of so many big names, a number of other startups started to appear more cautious, saying they would postpone the IPO plan. For example, AirBnB has announced that it will postpone its IPO schedule to 2020, while Palantir Technologies, a data mining company, said it will not IPO for many years.
Of course, not every startup is disappointing, drowned after the IPO, falling into misery like WeWork – if it is priced carefully. In the case of Pinterest, for example, the company’s stock has risen 44% after its first offering. Others are looking for ways to rearrange their business operations and management teams, asserting that they will shift their focus to “how to make profits” and not just “growth at all costs.” ” again. All of these efforts will take time to answer, hopefully 2020 will be more feasible for global startups.
Source : Trí Thức Trẻ