Public markets aren’t buying the stories that tech unicorns tell

Not entirely convincing.
Not entirely convincing.
Image: REUTERS/Mike Blake
We may earn a commission from links on this page.

To value a company, come up with a story and put numbers to it.

In recent years, technology startups have told the best stories. Uber promised to set the world in motion, Airbnb to create a world where anyone belongs, WeWork to elevate the world’s consciousness.

These big ideas came with even bigger numbers. Uber: $68 billion; Airbnb: $31 billion; WeWork: $47 billion. A small circle of wealthy private investors birthed a new vocabulary of “unicorns” and “mega-rounds.”

Now, these stories are being tested with investors in the public markets, who have proved less willing to engage in magical thinking. Uber, which went public in May, is trading 30% below its IPO price; Lyft is down more than 40% since March. This week, Peloton took a 10% tumble on its first day of trading. Airbnb said it won’t risk a listing until next year.

No company has crashed into the reality of the public markets harder than WeWork, which shelved its IPO last week on reports that its valuation could fall as low as $10 billion. The company this week pushed out its cultish CEO after investors balked at his self-dealing and mismanagement. WeWork reportedly plans to lay off thousands of employees and halt all new lease agreements as it looks to cut costs.

Behind each of these troubled IPOs is a common problem: The companies lose tremendous amounts of money. This was fine when they were shielded from scrutiny by a circle of investors who were happy to provide cash as long as valuations kept climbing. It has been a tougher sell for public investors, who are more interested in profits and less keen on founders with outsized sway over shareholders.

Aggressive, deep-pocketed venture investors like SoftBank have made it easier for companies to stay private for longer, raising staggering sums in the process. But these backers have to cash out eventually, and that usually means an IPO. When the paper gains in venture rounds turn out to be fiction, later-stage investors will be telling a different kind of tale.

Correction: An earlier version of this story misstated Airbnb’s valuation as $47 billion. It is $31 billion.

This essay was originally published in the weekend edition of the Quartz Daily Brief newsletter. Sign up for it here.