The VC land of wonders and waste is awash with cash, thanks to a decade-long loose liquidity pumping across the markets by the Central Banks. Just as in the prior iterations of the same (the Dot.Com Bubble and the pre-GFC assets binge), the outrun will be the same as it was before: a crash.
Liquidity moves markets!Follow the money. Find the profits!
TechCrunch reports that (https://techcrunch.com/2018/11/11/age-of-the-unicorn/):
- Over the last 5 years, the number of ‘unicorns’ – startups with valuations in excess of USD1 billion – has grown from 39 to 376 – almost a ten-fold increase
- The rate of ‘unicorns’ emergence is accelerating: in 11 months through November 1, 2018, we’ve added 81 new ‘unicorns’ to the roster, which means there is now a new ‘unicorn’ company launched every four days
- Mega-deals for start ups – funding rounds in excess of USD100 million – are also on the rise, with their frequency up ten-fold on five years ago. “Back in 2013, there were only about four mega rounds a month, but now there are forty mega rounds a month based…” Thus, “starting from 2015, public market IPO has for the first time no longer been the major funding source for unicorn size companies.”
- Given the close links between the PBOC policies, Chinese Government investment strategies and supports, and China’s counts of ‘unicorns’, majority of these start ups are heavily dependent on debt, and political good will. They are sitting ducks for ESG risks and are extremely exposed to political and policy uncertainty.
- The U.S. ‘unicorns’ are completely dependent on the markets ability to cycle cash from corporate and financial sectors debt and private equity into start ups funding, and M&As. There is zero rational valuation happening in this sub-sector.
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