Unicorpse: Speculation In The High Tech World Has Ended by Christopher Pavese, Broyhill Asset Management
Speculation in the high tech world appears to have ended early this year. As noted by Prem Watsa, in Fairfax Financial Holdings’ Annual Letter to Shareholders:
“The speculation in private high tech companies (the most valuable of which are known as ‘‘unicorns’’) has also ended with a thud. A friend of mine said the new name for these companies is ‘unicorpse’ as many of them cannot fund their losses internally for more than a few months and now have almost no access to external funding. The table below shows the companies mentioned in last year’s Annual Report.”
Maverick USA was down 3.3% for the second quarter, while Maverick Levered was down 2.1%. Maverick Long Enhanced was up 8%. Year to date, Maverick USA is up 31.8%, while Maverick Levered has gained 49.3%. Maverick Long Enhanced has returned 9.9% for the first six months of the year. Maverick Capital is a long/ short Read More
Prem continues: “Layoffs have begun in many of these companies. Money is being raised at lower valuations than the previous round of financing and the cycle is now in reverse.”
So pricing looks shaky. Many high profile unicorns have watched their valuations get dinged by late-stage investors. And yet, venture capital firms posted their best fundraising quarter since the tech bubble! A whopping $13 billion, according to preliminary data from Dow Jones VentureSource.
Prices are now falling for venture capital secondaries, as noted by Bloomberg. Making matters worse, Mutual Funds Can’t Agree on What Unicorns Are Worth. “Picking the right number is as much an art as it is a science.” Not terribly confidence-inspiring for those trusting investors that believed in unicorns.
For our part, we’ll stick with old-fashioned metrics like cash flow. Counting cash is not quite as exciting as riding a magical unicorn along the rainbow to big paper gains. But then again, a value-driven approach does not rely on fictional characters for profit.