Unicorns and Face Masks
That Was The Week 2024, #3
Unicorns and Face Masks
Aileen Lee and her team at Cowboy Ventures published an update on the topic of Unicorns this week. It coins new labels: 'ZIRPicorns' and 'Papercorns'. Here is a good summary of how their team sees the landscape:
It's a bloated herd that will thin in coming years (likely to about 350) because... • A whopping 93% are 'Papercorns' - privately valued companies. • 60% are 'ZIRPicorns' - their last valuation is from '20-22, when interest rates were near zero. • Many are running out of runway. Many are on the cusp: 21% are valued just at $1B (sorry?!) • ~40% are trading below $1B in secondary markets.4 • BUT. There is lots of substance in this herd. • And we see evidence of a Software Unicorn Power Law - the US will be home to more than 1,000 unicorns by 2033.
The biggest change since the original article is the ratio of exits. IPOs and Acquired companies. In 2013, 66% of the 39 Unicorns had exited. Today, it is only 7%, hence the term 'Papercorns'.
And the 2020-2022 investing frenzy means many, perhaps most, are worth far less than the most recent investors paid for them.
Despite that, the Cowboy team guesses that due to a correlation between Moore's Law and Unicorn growth, there will be over 1000 new US Unicorns by 2030. I'm willing to bet they are right, and the rise of AI will be a large catalyst for that.
This is in a week when Apple (today) opens up pre-orders for the Vision Pro. That is accompanied by news of what you can do with it. The most interesting for me is that Apple has recorded some intimate music sessions with major artists that can be viewed as if you are in the room with them, using spatial audio and video. That indicates a future of new and novel media experiences.
The Killing Eve creator turned to Substack this week to publish new episodes in writing. Creative use of new platforms is not slowing down.
My favorite Essays of the Week are from Jeff Becker and Packy McCormick. Jeff writes about venture capital and asks: Indexing works for the S&P, why not for VC?
In answering his own question, he posits that the venture business has to change and that the incumbents will have an innovator dilemma so that the change will come from outsiders:
The problem is, even if you wanted to, there is no infrastructure to simply buy the asset class. At least not without becoming an LP in dozens of funds and/or funds of funds with additional layers of fees.
Or at least there hasn't been one yet.
That's because there are fundamental challenges to doing it effectively:
How do you create infrastructure to evaluate 500,000+ founders annually and decide on which 5,000 to back?
Who has both enough capital & a long enough time horizon to deploy $50B over 10 years?
How do you support 50,000 companies?
How do you rebalance the fund toward the most valuable companies to produce outsized returns, like the S&P index?
And with companies like Apple, Microsoft, NVIDIA, etc earning 99% of their value after their IPO's, how do you extend your time horizon to 20, 30, or even 50 years?
All of this is possible, it's just going to take some time.
And so:
LP's ... need to change. Traditional high net worth individuals are not the right customer for reinventing venture capital. Sovereign funds, public money, and economic development groups are.
This is not the hope & pray for a 10X fund game. The early-stage game is about transforming the world through technology, while creating economic opportunity and global prosperity. It's about creating new businesses, new jobs, and bringing a reasonable quality of life to every corner of the globe. Sovereign funds, public money, and economic development groups possess the capital, long-term time horizon, and economic goals that align to the reinvention of VC.
My 2c. Indexing Venture needs a data infrastructure to select which private companies go into an index. That can enable differentiation between poor performers and the best. It also needs capital and access to those differentiated companies. It needs to find a public interface enabling retail investors to allocate to it later once the sovereign and others have initiated it. That is the journey SignalRank is on. - to select, access, and then open up later-stage venture-backed companies to index investors.
Packy McCormick has the headline of the week - You need to f* around to find out. This references the negative pushback that the Rabbit AI Agent (see the video of the week) received from naysayers. I will leave the last word to Packy - it's great.
Responding to the video:
The longer answer, which we'll explore today, is that the beauty of the system lies in millions of people trying new things, most of which will fail outright, some of which will succeed spectacularly, and many of which will survive only in pieces, contributing a new mechanism, concept, or feature to the pile of Lego bricks that the next group of tinkerers can play with.
This is true for products, research, and ideas, even the ones you disagree with. Especially the ones you disagree with.
The point isn't to play it safe and get it right the first time; if any one person or group of people had The Answers, we might as well give real communism a try.
The point is to experiment with wild, clever, creative, novel things, get feedback from the market, and iterate until, maybe, something emerges that improves society in a fundamental way.
Halleluja.
Essays of the Week