The debut on Wall Street was supposed to be the highlight for the billion dollar Silicon Valley startups. After years of hard work and rapid growth, they should be celebrated with significant gains and confirmed in their mission as a remixer of the old system.
But the Wall Street balance sheet of the unicorns, as the startups are called with more than a billion dollars rating, is mixed at best. It is devastating for Lyft and Uber. The only star so far is a company that nobody on the screen had: the video service Zoom.
The share has risen by around 30 percent since the IPO in mid-April. Zooms big advantage: The company makes profits. By contrast, Uber and Lyft, the big stars in Silicon Valley for a long time, are now the big losers. Sure, it's too early to make a final judgment. But the first impression is quite important on Wall Street.
The Lyft share has lost almost one third of its value since the stock market was launched at the end of March. Uber went down in history as an IPO with the highest losses on paper. This will cast its shadow over other start-ups that still want to go public this year. That was not the plan. The companies and their financiers, but also Wall Street, therefore, should first of all draw three lessons from the debacle
1. The ratings are too high
It has never been so easy for start-ups to collect private capital. Venture capital funds have become as big as never before in recent years. In addition, the $ 100 billion Vision Fund by Softbank, which is also invested in Uber. And never, it seems, were so few questions asked about the business model.
Fast growth was everything the investors wanted to see. With the number of users, the rating grew virtually unchecked. Uber was worth $ 60 million in 2011, compared to $ 76 billion last August. "Flashscaling" was the magic word.
First, a company must gain size and market power as quickly as possible, no matter what cost. The winnings will follow later. That can work, but only if companies manage to build a profitable business model after hyper growth. This has been achieved on Amazon, Google and Facebook. The investors were obviously blinded by these successes.
2. Wall Street must be a corrective
On the way of the start-ups on the stock market, the investment banks played an important role as intermediaries. You would have had to ask critical questions years ago and doubt the ratings and lower your expectations. Instead, they've helped drive the ratings higher.
They were convinced that Uber could be worth $ 120 billion on the stock exchange. Too big was the risk of being a shortsighted thinker in case stock prices skyrocketed. Morgan Stanley, Uber's leading investment bank, is now bearing the consequences.
The other start-ups who want to go public in the coming weeks and months should think that, especially WeWork. The co-working specialist made more losses last year than sales. Currently, the company is valued at $ 47 billion, making it the second largest IPO this year after Uber.
However, Silicon Valley start-ups need to recognize that investors and analysts are much more critical of their numbers today than venture capitalists have done in recent years. They are not just bothering about the losses.
Many have already passed the phase of rapid growth before coming to Wall Street. This makes the unicorns particularly risky now, in a late phase of the economy. Wall Street should therefore urgently lower the valuations, so that future IPOs do not flop again.
3. The final judgment is pending
A few weeks on the stock exchange are far from enough to form a comprehensive verdict. It is true that just Uber had just bad luck. The mismanaged IPO of Lyft pressed on the mood. In addition, US President Trump fueled the worries of shareholders with his intensified trade war last week in addition.
Nobody could foresee that. Uber, Lyft, Pinterest, WeWork and many others have done a great job. They quickly became international companies with billions in sales. And with their platforms and technologies, they have accumulated valuable data that many traditional companies would be tearing apart. Also Amazon and Facebook were not immediately the big stock market stars. The success of the unicorns on Wall Street is therefore not guaranteed, but also impossible despite false starts.