The unicorns are coming, and not a minute too soon for many investors.
As Bloomberg News reported recently, a flood of private companies are planning initial public offerings for next year, including behemoths such as Uber, Lyft and Slack Technologies. Airbnb may also add its name to the list.
Investors have been eager to get in, enviously watching humble startups morph into billion-dollar ventures. If only Uber and its cohorts had gone public earlier, investors tell themselves, they, too, could have profited from their rise.
Except it’s an illusion. For every Uber, there are many more startups that investors have never heard about. And even if they had, it would have been nearly impossible to pick the winners in advance, no matter how inevitable their success may seem now. The truth is, startups are doing investors a big favor by putting off IPOs until they’re more grown up.
Theranos did no favors for its investors, but it may have unwittingly helped the next generation of innovators.
The Securities and Exchange Commission last week accused the company and its CEO, Elizabeth Holmes, of misleading investors. According to the SEC’s complaint, Theranos lied about the capabilities of its blood-testing technology on its way to raising $700 million from 2013 to 2015.
As my Gadfly colleague Max Nisen rightly pointed out, “the sheer extent and audacity of the fraud perpetrated by Theranos’s leaders separates it from the pack.” But Theranos couldn’t have pulled off its elaborate fraud without the help of two larger forces.
The first is investors’ eagerness to throw money at startups on a scale that not long ago was available only to publicly traded companies. So-called unicorns — startups valued at $1 billion or more — raised $70 billion from 2014 to 2017, including a record $19.6 billion last year, according to financial data company PitchBook. To put that in perspective, that’s roughly three-quarters of the total net flow to all U.S. mutual funds over those four years, according to fund flows compiled by Bloomberg Intelligence.