Monday, April 17, 2017

As Uber Implodes Are Unicorns An Endangered Species?

Unicorns, they're fabulous, beautiful, mystical and infallible. And they have no substance to enable them to survive in the real world. I'm not talking about the Unicorns in fairy stories, like Tinkerbell they will exist in the real world as long as someone believes in them. No, I mean the high tech Unicorns that have emerged from Silicon (Silly con?) Valley in the past decade. It will take more than belief to preserve their existence.



 A, according to Investopedia a unicorn, in the world of business, is a company, usually a start-up that does not have an established performance record, with a stock market valuation or estimated valuation of more than $1 billion. As if those drawbacks were not enough to deter smart investors, most of this new breed of Unicorns have been high tech companies which have no proven business model, product or service, distribution or agent network and no revenue stream.

The start ups are mostly involved in disruptive technologies, that is those technology developments that are hyped as having the potential to change the world for the better (like Twitter !!!).

Perhaps the most notorious of the new wave Unicorns to date is (was) Solyndra, a company that had a revolutionary idea for making very run of the mill solar panels and thus revolutionising the energy generation and supply industry. Trouble was the guys behind Solyndra knew how to spend other peoples' money but were not only clueless about how to make solar panels, but also about how to keep accounts, cost and plan projects hire competent employees or sell products. The last one did not matter because after spending upwards of $$$ half a billion, Solyndra went bust without having made a single solar panel.
Unicorns everywhere, particularly high - tech unicorns whose sole purpose is to disrupt, regardless of profitable business metrics, fundamentals, or even laws, obtain funding from venture capitalists (including the one run by the CIA),  find an Investment Bank to manage the IPO (stock exchange launch), and then the founders cash in their chips. Twitter is fading, Facebook would be strggling but for the US Government being prepared to pay for the data FB steals, Snapchat stock soared because after the launch the hi - tech fanboys piled in, but is now plunging as harder headed investors shun the stock. But the company that has recently been help up and proclaimed the one leading the rush to a Brave New World is Uber. Unfortunately things are not as rosy for Uber as the publicists would have you believe.

Many commentators who should have known better held this company up as “the role model” for how to run, how to fight, and how to play by your own rules regardless if those rules may turn out to be in violation of known laws. i.e., “It’s all about disrupting and the Benjamins – screw everything else.” (i.e., AirBnB™ and it’s now legal issues as one example)

Not only are there issues relating to the hipster entrepreneurs belief that laws do not apply to 'cool people', these Unicorn start ups also have a reputation for being able to burn vast amounts of money without generating enough heat to boil a small kettle.

That approach to business development works as long as the central banks of major economies keep the bank rate near zero, effectively the investment banks are playing with “free money” (In fact it is not free, it is underwritten by us poor taxpayers). But when, as is happening now, the politicians realise that printing money causes far more problems than it solves, business fundamentals such as cash on hand, turnover, gross and net profits, P/E ratio*, corporate governance et cetera which were shunned by the geeks who founded Unicorns on the back of a mobile phone app or something equally flimsy, come back to haunt anyone who put money in.

2016 was supposed to be the “rebirth year” of the IPO. So was 2015 before it. And 2014, in fact every year since the crash of 2008 has been hailed as the dawn of the Brave New World, when machines that could think better than humans led us out of the wilderness, and creative accounting apps would change the way money worked so the more debt a person took on the richer they became. Hint: It  didn't happen, once again the nerds failed to distinguish between wishful thinking and solid, achievable plans. High Frequency Trading algorithms that we were promised would give us infinite economic growth led to wild fluctuations in stock, commodity and currency values as a financial product could be bought, sold, bought, sold and sold again in a few minutes. This has made it effectively impossible to know what anything is really worth.

 Uber, beset by scandals, wounded by an exodus of senior managers, burning money at an accelerating rate and facing greater legal issues than AirBnB and a loss of confidence on stock markets looks set to lead the next race to the bottom, as Newton's law of physics, the ones that explain why bubbles must burst, reassert themselves. If, or more realistically when Uber, with no market launch in sight, needs to go back to the funding rounds (and it is safe to speculate it will, with its self verified cash burn woes) and all the dirty laundry, sex scandals, management incompetence, dodgy accounting, blatant contempt of laws and regulations,and excess baggage is exposed in mainstream media to the entire investing world, the great cash burner will just run out of fuel and find nobody willing to take their credit cards.



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