Cash Party Is Almost Over for Unicorns Like Uber: Shira Ovide
2019-04-11 12:00:21.716 GMT

By Shira Ovide
(Bloomberg Opinion) — Uber Technologies Inc.’s coming IPO
is a moment to reflect on the oodles of investment cash that
have resulted in a herd of “unicorns,” the awful but convenient
shorthand for tech companies that reach valuations of at least
$1 billion while they’re private.
There are now more than 340 of them, according to CB
Insights, compared with the 18 unicorns identified in 2013 by
investor Aileen Lee when she coined the term. (Her list had 39
companies, but many of them had already gone public or been
acquired. Uber was on Lee’s list even back then.)
This unicorn proliferation is a result of changes in
technology and investing, including a decade of low U.S.
interest rates that pushed investors to hunt for better returns
in riskier, high-growth assets including tech startups. Last
year was the first time since 2000 that U.S. venture investments
in tech startups topped $100 billion, according to figures from
the National Venture Capital Association and PitchBook. It was
the capstone — so far— to what has been several years of
eyebrow-raising amounts of capital going into startups
worldwide.
A defining characteristic of the unicorn years is the
importance of investment cash. Winners and losers are determined
in part by which companies can raise the most money, not
necessarily the ones that create the best product or service.
Uber is the perfect encapsulation of this trend. Money was
a big way Uber differentiated itself from Lyft Inc. Its big bank
account dictated Uber’s strategy of going global and splurging
into adjacent categories such as restaurant food delivery and
freight handling, while Lyft stuck mostly to on-demand rides in
North America. There would be no Uber, or at least not one of
this size and breadth, at any other time in history.
That’s not to say that Uber’s product or its strategy is
inferior to Lyft’s, but the company was able to dream bigger
because it had more access to capital. At some point,
availability of cash becomes self-fulfilling. The startups that
look like winners get more capital, which ensures they win.
Whether that’s good or bad is up for debate. The elite
startups of the 2010s including Uber, Didi Chuxing Inc. and
SpaceX are bigger, more disruptive and potentially more lasting
companies because they had limitless access to cash to grow.
But the venture capitalist and Lyft investor Keith Rabois
recently told my colleague Emily Chang that a large amount of
investment money “usually creates more problems than it solves”
for startups. This is not a new idea. There’s a Silicon Valley
axiom that the best young companies tend to grow up during
recessions, which forces them to spend wisely and make sure
they’ve honed their products.
Regardless, now that some of the biggest unicorns such as
Snap Inc., Lyft and Uber are starting to go public, it may be
the beginning of the end of the period in which startups
differentiated themselves on fund-raising ability.
Not the end-end, of course. Electric scooters continue to
be a capital-raising race. So does restaurant food delivery, in
which Uber is playing the role of market share-grabbing, cash-
burning entrant.
One thing that won’t change as the elite unicorns go
public: They’re still wildly unprofitable and will be for some
time. But from now on, fewer unicorns will be able to rely on
the gushers of investor cash on which they’ve built their lush
magical forests.
A version of this column originally appeared in Bloomberg’s
Fully Charged technology newsletter. You can sign up here.

To contact the author of this story:
Shira Ovide at sovide@bloomberg.net
To contact the editor responsible for this story:
Daniel Niemi at dniemi1@bloomberg.net