Cashing Out of Unicorns Gets Hard

Until shares can be sold, “valuations” remain fake wealth.

With Friends like these…

Goldman Sachs’ hedge fund, Goldman Sachs Investment Partners, has offloaded over $75 million of Spotify shares, or “less than half” of its stake, in recent weeks, Sky News “has learnt” from “insiders.” This is peculiar because the Swedish music streaming service is preparing to list its shares on the New York Stock Exchange at a valuation of $13 billion, and confusingly, Goldman Sachs is one of the three investment banks that are advising Spotify on this “direct listing.”

A source told Sky News that Goldman Sachs had “practical reasons to sell a small stake.”

So what does Goldman Sachs know that others don’t?

A “direct listing” is not an IPO. It bypasses underwriters and their hefty fees and avoids the whole issue of IPO pricing. It also means that Spotify would not raise any new capital via this listing, which is planned for later this year or early next year. If it succeeds, it’ll be the first major direct listing on the NYSE. If other companies follow the example, investment banks, losing out on underwriting fees, would not be happy campers.

Spotify is one of the 167 “unicorns” in the US, Europe, and Asia listed in the Billion Dollar Startup Club: venture-capital funded startups that have reached “valuations” during their last round of fund-raising of $1 billion or more.

They include 100 US startups. Seven of them have “valuations” of $10 billion or more, including Uber’s $68 billion, if it remains intact, which seems unlikely, given all its problems. Two more unicorns have valuations of just over $9 billion; one of them is Theranos, which has imploded and whose $9-billion “valuation” has become a painfully leftover joke in the list.

But these are boom times. The Nasdaq has surged 16% this year and hovers near its all-time high. Startup booms require this kind of relentlessly rising stock market.

Yet, it has been tough for tech unicorns to provide an exit for their investors. The moment when investors cash out and take their hoped-for huge profits requires deep pockets to come in behind them. This happens when startups sell shares to the public via an IPO (or now perhaps via a “direct listing”), or when they’re acquired by large companies.

But for unicorns, this just isn’t happening anymore. So they keep growing in number, and their valuations get higher and higher, and the exits are blocked. Three years ago, in August 2014, there were 67 unicorns. At the beginning of 2017, there were 157. Now they’re 167.

This year so far, there have been only eight exits among unicorns:

Of these six unicorn IPOs, not all of them fared well:

  • Software company Cloudera went public in April at $15 a share. Today shares closed at $17.48, up 16.5% from the IPO. But they’re down 24% from their post-IPO peak.
  • Meal-kit company Blue Apron went public at $10 a share, rose to $11, but has since plunged 51% to $5.31, and is down 47% from its IPO price.
  • Snapchat parent Snap Inc. went public at $17 a share, and now at $14.01, is down 21% from its IPO price and down 53% from its peak three days after the IPO.
  • Software company MuleSoft went public at $17 and closed today at $20.91, up 23%. But this is down 27% from its post-IPO peak.
  • Security software maker Okta went public at $17 a share and today closed at $24.56, up 44% from its IPO and down 9% from its post IPO peak.
  • Delivery Hero went public at €25.50 in Germany and today closed at €27.36, up 7.3% from the IPO price, but down 6.6% from the post-IPO peak.

Those were the lucky ones that made it out of the gate.

Beneath the unicorns: Investors in small fry are still able to get out. According to the Wall Street Journal, citing Dealogic, 1,546 startup tech companies were acquired this year, about the same number as last year at this time. But the average deal size was only about $39 million – down 15% from last year’s average. Big companies doing big acquisitions appear to have become gun-shy, Cisco’s AppDynamics deal in January having been the exception.

And 17 tech startups of all sizes went public this year through August 15, including unicorns. In 2016 at this time, 26 companies had gone public. 2016 was already a down-year. Over the same period in 2014, 62 tech companies had gone public — almost four times as many as this year.

Startups with these stunningly high valuations, in relationships to the thin revenues and the thick losses they produce, appear to have trapped their investors: It’s easy to inflate valuations during funding negotiations among a handful of investors behind closed doors where everyone wins when valuations keep getting inflated.

But it’s now getting hard to persuade the outside world to pay these ludicrous valuations just so the original investors – and this includes employees with stock-based compensation – can cash out. Until shares can be sold, these “valuations” remain fake wealth. Many startup investors, particularly those that got in at later stages, may see their bets go up in smoke.

And Goldman Sachs might have been contemplating this when it sold “less than half” of its stake in Spotify even though it is advising the startup on its direct listing at a humongous valuation of $13 billion and could have waited to sell if it figured the listing would succeed and shares would rise afterwards.

Silicon Valley has jumped all over self-driving car technologies. But the automakers still build the cars. Read…  What Ford’s New Guy Said about the Future of Self-Driving Cars

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  50 comments for “Cashing Out of Unicorns Gets Hard

  1. Gershon says:

    What happens when the supply of Greater Fools suddenly dries up?

    • cdr says:

      They buy vacation time shares.

    • AC says:

      The government steps in, and spends the money for them?

      • Mike says:

        Unfortunately, most of the money spent in recent years has been as aid to bankster oligarchs that managed to corporate contribute (some call it “bribe) politicians into giving them aid. Now, their trick is to keep Americans occupied while the statutes of limitation run out. Eric Holder did such a good job for them in ensuring that, so I am sure that they will give him a gigantic, discreet bonus, when it looks safe.

        While Americans are dazzled by these stock valuations and think that they are getting rich (while the “Federal” reserve bankster cartel keeps interest rates at historic lows to facilitate this), the banks are partying with American’s wealth. They have not been subjected to serious regulation or prosecution to discourage their crimes and now have one of their own as treasury secretary (and a dunce as president) to remove what little regulation was enacted.

        Mnuchkin has already made clear that their alleged new “Glass Steagal” act is related to the real Glass Steagal provisions like lead covered with glitter/poop is to a gold nugget. I.e., it was another Trump lie.

        When the collapse in prices comes, I hope that Americans will finally, finally open their eyes and maybe lose trust in the Republicans, who dominate state houses and governorships, the U.S. senate, and the U.S. house. See I hope the democrats will flush bankster allies like H. Clinton down the drain.

        Slowly but surely the banksters and their corporate allies, e.g., Murdoch, have purchased more and more media outlets to control and distract Americans while they pillage America. I find it infinitely sad when I think about the America that will remain for my progeny: will it be as prosperous as Argentina is now? If we are lucky, maybe.

        • two beers says:


          I hate to burst your bubble (so to speak), but the feckless Democrats are every bit as beholden to Wall St as their Republican counterparts, just less conspicuously so.

          The two legacy parties act as good cop/bad cop, depending on one’s social orientation, and they also act as gatekeepers of permissible political discourse, i.e. anything further to the left of liberal Democrats or to the right of conservative Republicans is more or less verboten in MSM. I invite you to research the concept of the “Overton window,’ to get a better understanding of how political discourse is circumscribed to squash discussion of any policy that threatens the wealth of the .01%

    • chip javert says:

      It won’t as long as people keep having babies…couple this with the fact that <10% (my guess) of the investing public can read financial statements, and you have fertile ground for "Greater Fools".

      The important dimension of "Greater Fools" isn't necessarily their absolute numbers, but their buying power (the "money" in "a fool and his…").

      This can be impressive: note SNAP's recent price & daily volumes as hedge funds, indices and other so-called "smart money" exit the stock.

  2. R2D2 says:

    Companies such as Blue Apron and Snapchat are really just Wall Street’s scams. These companies will never be profitable. The creators and Wall Street banks win, and little wannabe investors are milked.

    • Bobber says:

      I thought Blue Apron was a dumb idea, but my wife just started purchasing $35 mail order meals from a similar outfit. I tried to challenge her on that but she held firm, saying she doesn’t have time to plan meals and do a full-time professional job at the same time. I offered to buy fresh groceries at the store, but she said the time to plan the meal is the issue. The Blue Apron meals are all pre-planned with all the required ingredients included.

      Looks like I’ll have to live with it or get a new wife. Personally, I can’t stand the cost of the meals and all the shipping materials that go to waste.

      • Mary says:

        Hmm…I bet there is a solution to your quandary. Divorce your wife and marry another woman? But suppose the next one’s also not interested in doing unpaid household labor in addition to her paid job.

        Looks like only one solution is going to work. Learn to meal plan and cook yourself. (BTW, your wife is correct that meal PLANNING is the real brain buster.)

        • Paulo says:

          Meal planning is very simple for organized families. Before planning ‘the shopping excursion’ we check the flyers for sales. Then, we plan our meals around what we wish to purchase and use the loss leader sales for organizing and saving money on shopping travel and ingredient costs. (No, we don’t go from store to store…..just pick what is available where we wish to shop).

          My wife and I managed to both work full time and do this with very little effort. Of course it helps that we both like to cook.

          When I had a rough day at work I would come home and ‘ask’ to be the cook. The more prep required the better it was as I could zone out with a glass of wine and some music. The cook does not have to wash the dishes in our house. When the kids were little we taught them to cook along the way, and now that they are in their thirties they are very good at it.

          It is all about attitude. If you go into a job thinking it is a chore and resenting the process then guess what? It is.

          Now, as we are now both retired we can eat out whenever we want. Do we? Seldom…once every two weeks, maybe, because what we cook at home is far superior than what we can purchase at a restaurant, (often, for 10% of the cost) and drinks are almost free. :-)

          We have freezers stocked with sale items to supplement our home produced food. I would guess we easily save several thousand dollars per year on our food costs, and are healthier for it as well. It’s fun.

          I used to hate and resent cutting the grass, too. Then, I spent a few years working in the north where grass doesn’t grow and the bugs are so bad you don’t even want to go outside. Now, it’s a treat and I am thankful to do it. Weird…I know :-)

          So, nowadays people invest in companies that plan and pick their food for them. They hire cleaning services and security firms. They might one day have a self-driving car. They don’t read maps anymore or trip plan. There are even dog walking services and christmas shoppers. What on earth are people so busy doing that they can no longer do for themselves? How much does this abdication cost? It sounds like a hamster wheel to me…and somebody elses at that.


        • chip javert says:


          Just a guess, but (though I love OCCASIONAL gourmet cooking), I can easily think of roughly 30 billion other things I’d rather spend my time on than reading the paper, coupon clipping, shopping and cooking daily meals (i.e.: travel, reading, yard-work, fishing..,).

          Good for you if it works.

      • RoseN says:

        Paulo wonders why can’t busy families have time for meal planning, cutting the grass, and (I assume) cleaning the home.
        But he has two things that are helping him:
        1. He has a wife who is on board with the program.
        2. He and his wife like to cook.

        Not everyone has this fortunate situation. And if you’re not that great of a cook (and don’t really like it), it is overwhelming to plan, shop, and prepare meals while working full-time. (Many people are getting home after 6 pm or later.) Also, in professional jobs, some have to work in the evenings or weekends just to get the job done. If you add children to the mix, it feels impossible.

        Paolo also writes:
        What on earth are people so busy doing that they can no longer do for themselves?

        The thing is, fifty years ago, the work of the home was considered significant enough that one person needed to attend to it full time. Now we’re supposed to do all of the previous work plus this other thing (called a full-time job).

        Having acknowledged people’s difficulties, I don’t think the answer is to use a service that produces unnecessary waste. (Many recycling facilities are overwhelmed with the amount of additional packaging generated over the last few years.)

        The longer I think about this problem, the more I realize that it does not make sense for our planet or people’s physical and mental health to carry on working at this pace. We are so exhausted and harried that we have to resort to using short-cuts that are generally bad for the environment.

        To make a change is not easy. I predict, though, that we eventually will be forced to make this change. When the consequences of climate change reach a crisis point, governments will step in and prohibit the use of greenhouse gas emitting practices. Families will be forced to resort to more traditional practices, and they soon will realize that they cannot do things the old way with both partners holding down a full-time job.

        A lot of these unicorns think they’re changing the world, but in some cases, they ironically are changing it for the worse.

        • Bobber says:

          Well said. People in the U.S. are constantly comparing wealth and status to others. It’s damaging to the soul and bad for society overall. People spend too much time thinking about material objects and working to obtain material objects. Better to be content and happy.

      • Michael Fiorillo says:

        Have a well-stocked pantry with non-perishables – grains, pasta, nuts and nut butters, a variety of good cooking oils (I always have some good olive oil, sesame oil and a neutral oil on hand), canned tomatoes and paste, beans, etc. – and then purchase fresh fruit, vegetables and protein as needed.

        A quality store-bought roast chicken can provide the base of up to half a dozen healthy, quick meals. A full pan of roasted vegetables will also provide food throughout the week. I make a delicious marinara sauce, a gallon of finished product that costs me five dollars or less, in one hour, providing the base or accent for another half dozen meals. Etc.

        The costs and waste involved in those meal delivery services – with current prices presumably being subsidized by investors to gain customers and market share – are completely over the top. Also, the workplaces are sweatshops where workers are constantly subjected to intense productivity harassment by management.

        Like Mary said, learn to cook – it’s fun, calming, physically and mentally healthier – then eat together as a family, no electronic devices allowed; you’ll be surprised how much you’ll save, how much better you’ll eat, and how much better you’ll feel.

      • R2D2 says:

        I’m a single guy, and had never cooked before I moved out. And doing chores around the house including some cooking is like a break from the hard programming that I have to do. It’s amazing that people call house chores even work, let alone hard work. I didn’t know what Blue Apron does in the past, so I watched a few YouTube video to see what the hell it is about. Holey cow, I can make food in a fraction of time that it takes to read the stupid instruction they include for cooking. And my tummy is not the center of the universe to spend all my time and lots of money on it.

        Bobber I can’t suggest a divorce, but man are you in trouble!

        • chip javert says:

          Wow! You are so lucky to have easy domestic stuff to do to, you know, take your mind off all that “hard programming”.

      • StevetheGreek says:

        I once had a wife like that – now I have just a plain-Jane girlfriend. Best
        to decision in life so far. ?

        I watch APRN every day, continue to burn through cash. Just a matter of time before it becomes a 2 banger

    • MC says:

      I look from another prospective.

      Delivery Hero operates in an extremely competitive market, to use an euphemism. In Europe it has to compete with Deliveroo, Just Eat and especially and things have heated up to the point Delivery Hero is being investigated by German and Dutch authorities for “instigating” DDoS attacks against its competitors.

      This hasn’t stopped big investment funds from pouring money into these companies like there is no tomorrow.
      Vostok New Investments, formerly Vostok Nafta, Sweden’s largest VC fund, has poured about half a billion euro into Delivery Hero to date in several rounds of financing. Bridgepoint Capital (no introduction needed) poured almost US $300 million into Deliveroo in a single installment.
      This is insane money for the sector.

      These are not mom and pops trying to protect their hard earned savings by the ravages of inflation without compensation. These are major investment funds which supposedly should know better: they are pouring money into food delivery, which isn’t exactly a new drug to cure a wasting disease nor a new jetliner engine.
      These firms have little in form of tangible assets: they do not own the restaurants cooking the food itself (albeit Just Eat is poised to change that) and their couriers are usually self-employed. All they own is a slick piece of software, their own brand and the brands they bought for insane sums using their institutional investors’ money: just to give an example Just Eat burned through a monster £200 million to acquire competitor Hungryhouse.

      In this environment it’s no small wonder losses grow in parallel with the company in what is now called the Uber model: Deliveroo lost about £20 million last year and expects losses to worsen this year.

      Again, this is wholly financed by funds run by luminaries who should know better, often employing former Goldman-Sachs people who are touted as being market wizards and who yet get regularly outperformed by simple dumb funds tracking the S&P500 and Nikkei 225.

      • Gershon says:

        These “venture capitalists” can speculate with reckless abandon, knowing the Fed and middle class taxpayers have their backs.

        • chip javert says:

          Gee, I guessed I missed the reports on the Fed and taxpayers bailing out “venture capitalists”.

    • alex in san jose says:

      R2D2 – USA just needs this:

  3. raxadian says:

    Is the Internet Bubble all over again, only now the tech companies are actually providing real services… most of the time.

  4. Kevin Carhart says:

    Do companies that use a direct listing have lighter or different disclosure requirements than ones that go public through IPOs? Is this part of the appeal, for companies for whom publishing an S-1, or something else along those lines, would reveal how useless and fraudulent some of them are? Do you have a different relationship with SEC rules if you use a DPO? It sounds like a clever new way to facilitate Bill Black’s “control frauds” through getting yourself put in a less regulated bucket.

    • MC says:

      All companies going public in the US are required to fill the so-called S1 application with the SEC, which details past financial performance of the business, risk factors, how the company expects to use public offering proceedings etc.

      Starting in 2012, however, so called small businesses were relieved of certain audits and financial disclosures to make it easier for them to raise capital through stock markets. However these benefits are not permanent: they can extend “up to five years”, at the SEC discretion.
      This means after the initial grace period, even small businesses have to provide as detailed SEC filings as large ones.

      So a company looking towards US $13 billion in market capitalization would have no advantages here as it cannot be considered a “small business” by any stretch of imagination.

      The advantages of a direct listing are exclusively financial: bypassing investment banks can save the share issuer enormous sums in fees.
      The problem is direct listings are usually reserved for the smaller, second and third tier stock exchanges.
      A typical example are the shares of comatose and fictionally solvent Italian banks, which are traded on small stock exchanges (some of them listing as few as six titles) and usually directly pitched by the banks themselves.

      To date there hasn’t been a single successful direct listing on the NYSE: the need to sell millions or even billions of shares worth enormous amounts of money without relying on the firepower of big investment banks usually scuttles the deal.
      That’s why everybody’s eyes are on Spotify: if they pull this off it means it’s now possible to cut off the middleman.

      • Kevin Carhart says:

        Hmmmm. Thank you, MC!

      • Petunia says:

        The real money now is in the thousands of hedge funds across the world with direct access to big pools of money. A “semi listed” company can be seen as legitimate enough to invest in and provides a cover. These “sort of listed” companies can be bid up in these dealer networks of hedge funds to ridiculous levels. Why IPO a company which will crash and burn and ruin the underwriter’s credibility, when you can pump and dump it for years. I wouldn’t be surprised to see Spotify eventually become a trillion dollar IPO.

  5. Gershon says:

    Our financial media border collies are still trying to herd the last of the retail-investor bag holders into the Wall Street pump & dump while Da Boyz stealthily cash out and head for the exits. How long before Goldman Sachs places massive short bets against these rigged, broken, manipulated “markets,” then orders its helmet-haired albino hobbit at the Fed to hike interest rates and implode the Wall Street-Federal Reserve Ponzi?

  6. David Rohn says:

    so…..I forgot……..why were these sorts of companies dubbed ‘unicorns’ again???….was it so we could believe in them?

  7. beadblonde says:

    One of these was sure to be the next Apple. But we’re all of gamblers at this stage.

  8. kenny says:

    yes you have google and amazon to make money but then so many losers how is snap going to make money augmented reality.
    but all the games are flops pokemon go did just ok the tech is not maintream yet.even virtual reality isn,t mainstream a lot of hype and not much more sansar platform is boring.
    uber is losing so much money and has so much bad press how are they going to do when they ipo what will be the valuation of the Company.uber should have self drinving car with there own brand.
    viber lyft spotify ofo could perform much better even digital currencies could do much better then the stock market

    • Kent says:

      IMHO, the problem with virtual reality games is that you have to mimic actual physical movement. That’s not something your average chubby kid wants to do.

      • chip javert says:


        OUCH – that had to hurt.

        Boss at VR firm: We have a great new game – it’ll make billions!

        Marketer at VR firm: It’s a no-go – all our users are out-of-shape fat kids.

      • Petunia says:

        You need a lot of space to use VR. With everybody downsizing and living in their RVs, it’s not practical.

  9. in the year 2100 says:

    Youtube/Alphabet, Twitch/Amazon, Apple are going to eventually crush the valuations of Pandora, Spotify.

    Pandora and Spotify will still be around, but the bulk of music delivery will migrate to channels that also provide video content.

    Wouldn’t be surprised if Netflix is interested in buying a music streaming service.

    • Meme Imfurst says:

      CRUSHED by monopolies….welcome to the new and improved USA.

      How long before accounts disappear because the ‘wrong tune’ was played? Or the search engine blocks discovery access?

    • milking institute says:

      I have three music APPS on my phone,all free with no commercials. my question is: what is the business model and how does ANYONE get payed,including the artists? not complaining,who doesn’t like free stuff but where are we going here? can i look forward to be driven around by Uber for free? what a great new world…

  10. k9thunder says:

    Private placements are ILLIQUID. One would think those investing in such investment should know and yes whatever goes up especially paper wealth estmate can come crashing down if there are lack of buyers.

  11. Meme Imfurst says:

    Money has no value is the message…none…just numbers. That is what people ‘invest in ‘ now…numbers.

    Sooner or later it will be illegal to have any monetary value attached to any of the companies, then it will be based on their emoticons and ‘likes’ for their ‘safe place’ appreciation.

    Indeed, start-ups for trading ‘safe places’ is just getting started with emoticons are already close to 1 billion and growing thru various block exchanges…….

  12. Tom Stone says:

    Any asset is worth exactly as much as someone is willing to pay for it in cash, today.
    Theranos is worth more than a used condom, as is Uber.
    How much more is yet to be determined.

  13. Rates says:

    Maybe this is a Goldman scam. Basically get “someone” to “buy” the shares in advance at high valuation i.e. drum up enthusiasm in a Pre IPO. And then unleash the real shares afterwards at elevated valuation.

    • chip javert says:

      Insider trading rules apply to registered AND unregistered stock; gonna be interesting to see exactly how they do this and avoid insider trading.

  14. tony says:

    Please do not mention goldman and scam in the same sentence, that is unamerican. I bought 5 shares in case it takes off. Broker told me if it goes down i get a free sandwich how could i say no.

  15. Shawn says:

    As usual, great article. Silicon Valley is full of con-artists and a sucker is born every day.

  16. Wilbur58 says:

    Why are people saying money has no value? It still buys real estate and food. Having tons of it would be good.

    • Wolf Richter says:

      I can’t figure that out either. Baffles me every time I see that.

      • chip javert says:

        Generally said by three distinct classes (only 2 & 3 overlap):

        o People flaunting that they have more money than they can understand (definitely not the same as all “people with a lot of money”). Bizzillionaire athletes players are inclined to say this (I loved the game – I’d play for free!)

        o People spending other people’s money

        o People described by “a fool and his money are soon parted” (generally to avoid embarrassment after the “parting” has occurred)

  17. Jim C says:

    I bet unicorns pee their pants after cashing out so hard due to fact they siphoned so much nectar. The vampire squid must be smiling from ear to ear. Ka-ching!

Comments are closed.