Unicorns and Face Masks

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I've got sunshine on a cloudy day When it's cold outside I've got the month of May Everybody say I guess you'd say

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Can't make me feel this way It's my girl, my girl, my girl, my girl

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Hi, welcome to That Was The Week. No Andrew this week. So sadly, you're gonna have to deal with me doing a face to camera, which I know is incredibly, well, I'm assuming it's totally boring. Because I, when I listen to my own voice, sound pretty deadpan and unexceptional, as they say, but it is what it is. Andrew is traveling. So, so let's get on with it. This week's newsletter is called Unicorns and Face Masks, which I tried to illustrate with, as you can see, with horses, with Horns Wearing Face Masks that look a little bit like the Apple Vision Pro because a couple of things happened this week that dominated my thinking. The first is that Aileen Lee of Cowboy Ventures and her team produced a follow-up to their 2013 document which

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coined the phrase unicorns for the first time. At that time, there were 39 unicorns and 66% of them had exited by IPO or on merger and acquisition. and she felt it was time for an update and of course she's right and she goes into great detail about what's changed and there's really a small number of things that she focuses on. The first is of course there's a lot more unicorns. The second is they mostly have not exited, only seven percent have exited And she coins the phrase paper corns to describe those. And also Zerp Zerpacorns, which is unicorns created during the zero interest rate time period. And in doing that, she and the team are focused on what I would call fake unicorns, unicorns that achieved a certain valuation in the past, but are really not worth what investors paid for them at that time. I actually have a further distinction that I make, which is the distinction between organic unicorns and inorganic. An organic unicorn is a company that goes through all the stages of growth, from an idea all the way through to a great business with lots of revenue and good gross margins. And those companies will always do well. And then there's inorganic unicorns, which are unicorns that a single check writer, typically it would be someone like a Tiger Global, early in the life of a company, writes a check at a valuation that says the company's worth a billion dollars. And they do that because they're assuming that this company will IPO in the not too distant future for well above $3 billion and maybe a lot more than that. That inorganic unicorn creation still exists in artificial intelligence, but for the most part, it's disappeared from the scene. And so what you have are organic unicorns. And from 2023 onwards, the valuations that people are paying are right sized to the opportunity and the current Aliens Document

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She then makes a third point, which in some ways is the most interesting, super interesting, where she correlates unicorn production, that is to say the number of companies that achieve a billion dollar valuation or greater in private markets. And she correlates that to the rise of computational power, or Moore's law in a way, and makes the point that unicorns grow at a faster rate than computation, meaning that it's better than Moore's law. And based on that, her and her team predict there'll be a thousand new US unicorns by 2030, which is six years. And certainly, I don't know whether her correlation is right, because there are always correlations that appear to be causal, and actually they're not. And so hers may not be causal. I have a slightly different correlation, but it does include hers, which is that The Market for Technology is Expanded as the Distribution of Tech is Expanded. So since 2007 with the iPhone and now with several billion people on the planet with smartphones, software has an audience, potentially as large as several billion people. And so really, really big companies can be built super fast. In fact, today, a company out of Kazakhstan, I think it's called Caspi or something like that. It's a bank, it's already listed on the London Stock Exchange. It did an additional listing here in the US. And it's a kind of a everything app. But Only For Kazakhstan. It raised a billion dollars in its listing and is valued at 20 billion. And that's because mobile is so ubiquitous that the entire population of Kazakhstan is on it. And because it's an everything app meaning money transfers purchases everything. it has a lot of revenue just from a single, relatively small country. That tells you that there will be a lot of unicorns, not necessarily AI driven, but purely just because of the scale of technology and its global reach. Large companies can be built super fast, even in single countries. In fact, the truth is even in single cities, large cities, the company that dominates food delivery, for example, would be a big company. So I agree with Aileen that the future will create a lot more unicorns, but they'll be organic unicorns. They're unlikely to be valued at a crazy high valuation early in their life and become a unicorn almost immediately. That's unlikely to happen. So that's the unicorn part of That Was The Week this week. The face mask part, of course, relates to apples. Launch Today of the Vision Pro. There's been quite a lot of snippets this week where people have got to test the most recent software releases that are running on the Vision Pro and feedback their experiences. and I think it's fair to say that the 80,000 or so units that will be available today will probably sell out because there's at least that many people on the planet that just want to try this and see how it works and those people are going to start writing and depending on how they experience the product it could become a very big product when it's priced at $3,500 And that's without the lenses you need if you, like me, wear spectacles. You know, that's a lot of money at a relatively low number of units. It's not quite a car manufacturer, but it's probably 10% of a car manufacturer, but it'll sell a lot more units than car manufacturers do. So we'll wait and see, but the editorial speaks about that. Actually, the two most interesting articles this week, for me at least, is an article written by a VC, actually. His name is Jeff Becker. And Jeff writes an article saying indexing works for the S&P 500, why not for venture capital? And in his essay, which is one of the essays of the week, he talks about He talks about how the infrastructure for venture capital is outdated. The kind of artisan small venture shop is outdated. And he speaks to the need to professionalize venture capital. And he goes into some detail why, if that is going to happen, it probably isn't the incumbents that are going to make it happen. It's probably going to be new, new voices and new faces in venture capital. And his goal is to be able to index venture capital. Now that that is a As most of you will know, something very close to my heart, I have at SignalRank the goal of building such an index. I'm just opening a dolcan here so I can give you some numbers that help you understand what that might mean. So I focused on Series B rounds. There were 11,500 Series B rounds since 2012 all the way through to 2019. I'll stop there because I want to see the progress of those 2019 deals over five years to be able to assess what an index might look like. Well, in the case of those 11,500 rounds, the average growth in value is four times the money invested. That's all the money invested. That's actually 121 billion was invested in all those BRAMs. So it's roughly four times 121 of 480 billion of value today. So if you were indexing BRAMs over eight years,

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you would have done four times the value. There's a side issue about how liquid that is and whether you could exit, but let's leave that for now and just look at the value growth. By the way, 10% of those 11,000 rounds became unicorns, 1,194 unicorns altogether.

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So, of course, you can't index 11 and a half thousand rounds, you'd have to put the same amount of money into everyone to get those results. And that is a lot of money, even if you're doing 1%. it would be a lot of money, over $1.2 billion. So 1.2 turning into 4.8 would be a great outcome, but nobody could get into all the rounds. You wouldn't have access. So it's just not practical. So by definition, an index like the S&P 500 has to be a subset, preferably a high quality subset of the whole cohort. In SignalRank's case, there were 1,600 funding rounds that we qualified as being high quality during that period. And if you had invested in those, the gross raise was $31 billion. And 1% therefore would be $300 million, a much more doable number, especially over eight years. In fact, one could even invest more than that. The performance is 5.2x. So 300 million would turn into more than 1.5 billion over those years, and 418 of the 1600 would become unicorns, that is 25%.

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So that is an index. That's what an index looks like. We compare it to the top 100 B investors, which is a pretty close approximation. If you could just invest in the top 100 series B investors, you'd be in 2,800 rounds. So it's a little bit more difficult. That's a lot of rounds. You would have needed to invest 41, they invested $41 billion. So you would have put in about 400 million if it was 1%. and your performance would have been 4.8 times your money. So somewhere in the middle between single rank and the whole market and 20% would have been unicorns somewhere in the middle between 10% for the whole market and 25% for single rank. So those are numbers, but that is that's what I do. Single rank is an index. So that's why I like Jeff's article. I think it's a brilliant article and I highly recommend reading it. The second most interesting article to me is Paki McCormick's article. His subtitle is You Need to F Around to Find Out. which I think is a great sentiment. You don't learn anything without engaging, without doing stuff. And so Paki is focused on a product that was released this week. It's called Rabbit AI Agent. and in fact, Rabbit AI Agent, the video of the week this week is the launch of that product at CES in Las Vegas. And what Paki is doing is he's kind of emotionally responding to some of the negativity that came from nerds and geeks about this product, the Rabbit AI Agent. People saying it should be an app, it doesn't need to be a piece of hardware and so on. And Paki makes the point that, especially in early stage technologies like AI, You really don't know what's going to fly and what's going to work. I remember ICQ back in the late 90s, early 2000s being fantastic. And it was very ugly, but very functional. And Yossi Bardi's son who built that and Yossi who helped him, probably had no idea how big it would be. It was eventually acquired by AOL. for hundreds of millions of dollars, and no one would have predicted it. So you need to F around to find out is a great sentiment. And I think it pertains very well to the rabbit product. Have a look at the video and see what you think for yourself. But it's very geeky, but it's also kind of amazing at the same time that it could even exist. Other than that, there's a couple of things that really stand out this week. This was the week that the SEC agreed to ETFs focused on Bitcoin ownership being legitimate, and lots of them launched, including the one from BlackRock. And just a few days later, I think it was about 10 days later, actually, BlackRock has now taken in more than a billion dollars from investors who want to own Bitcoin via their ETF, which is a big number. Bitcoin's price, by the way, has slightly dropped back. It's somewhat stable in the $40,000 range. So there's been no big price spike due to all these ETFs, but there has been an inflow of capital. And that correlates to the startup of the week, which is Circle. Circle is the company that created and runs the stablecoin USDC. The USDC is basically a coin for a dollar, and it stays stable at a dollar. So you can use it as a

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A Resting Place For Capital Prior To Deploying It Without Fear That It Will Decline In Value Other Than The Normal Decline In The Dollar, Interest Rates Being The Main Driver Of That. And Inflation. So Stablecoin, USDC, the parent company Circle has filed for an IPO. And in the tweet of the week, Elon Musk proudly declares, actually it was his CEO, Linda, who declared it, that Mr. Beast, who is a huge phenomenon on YouTube, just uploaded his first video for the X platform. And of course, Ceylon is trying to do to X what the Kazakh company did, which is create an everything app. A video, especially video for entertainment would be a big part of that. And Mr. Beast, it doesn't get much bigger than Mr. Beast when it comes to video for entertainment. So that is That Was The Week. Again, apologies that this is a monologue as opposed to a contested conversation with Andrew, but he's at a wedding and not available. So you got me. Hope that was worth listening to. Enjoy the newsletter and see you all next week.

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On A Cloudy Day When It's Cold Outside I've Got The Month Of May Everybody Say I Guess You Say What Can Make Me Feel This Way Is My Girl I'm Talking About My Girl