VC by the Numbers discussed “Triple Crowns” and why these make for the best investments as compared to “unicorns”. In this blog (and in my book) I argue unicorns are overrated on a regular basis.

What are “Triple Crowns” ? From Unicorns are overrated, Triple Crowns are Better:  These are the financing that met these three conditions:

1.”Realized a cash-on-cash multiple of at least 10X, and
2. Realized an IRR of at least 100%, and
3. VCs invested at least $1M. “

Correlation Ventures studies have shown that while unicorns make up some 3% of ventures financings since 2006, triple crowns make up only 2%. CV’s David Coats expresses his belief that the focus on unicorns and later stage-greater need for financing is an unhealthy trend for the VC industry.

How are you training for 2019 ?

Since we’re still at the beginning of the year, are you implementing anything new and exciting in your workout ?

A buddy of mine talked to me about Spartan SGX or Spartan Strong Classes and told me to try it out. Here is the link for those type of classes. (these are 90-minutes long)

Winter[fell] is here in 2019

In 2017, I wrote a best-read post on the Season 7 of the Game of Thrones. The expectations are high for this year’s final season. Let’s remember:

The academic world took the lead at it

Those hyper valuations appear more hype than science, in fact as Professor Ilya Strebulaev of Stanford Graduate School remarked at SVOD, fair market values may be 33 to 70% lower than the advertised (purported) post money valuation unicorns love to taut.

The San Francisco Chronicle already in May 2015 first wrote about those +1Bn valued companies, citing a Fenwick & West study:

• in May 2015, 35% of the companies Fenwick &West analyzed had valuations in the $1-1.1 billion dollar range,
• in the 4th quarter of 2015, 50% of the unicorns were in $1-1.1 Bn range

, indicating that the companies may have negotiated specifically to attain the unicorn level.

It’s Barbarians at the Gates with these rhinos.

That study also found investors were given 100% protection for subsequent down rounds if acquired, while only 30%  were protected for post-IPO down rounds. Thus it can be reasonably inferred the unicorns were lowering investors protections for going public scenarios, knowing they could easily go public at lower valuations, given their unrealistic valuations.

Next, Prof. A. Damodaran of NYU Stern School analyzed Uber’s considerable cash burn. You can’t burn through cash forever.

“The cash flows stay negative over the next ten years. In this [malignant] scenario, it is very unlikely that Uber will make it to year 10 or even year 5, as capital providers will balk at feeding the cash burn machine?” Well, Uber has made it through Year 7, and burned through at least $1.2 Bn the first part of 2016

After discounting the PV of negative cash flows (dilution effect) today, Prof. Damodaran finds the value of Uber’s operating assets to be $21 Bn (assuming Uber has a zero chance of failing).
Prof. Damodran re-valued Uber from last year at $28 Bn which takes into account Uber’s 20% ownership in the Chinese ride-sharing giant Didi. A long way to go to $62.5 Bn (Uber latest valuation raise, Dec. 2015)

Understanding its limited options, Uber wants to eliminate drivers and eventually replace them with self-driving cars. Is Uber a ride-sharing (logistics) company ?  A software company ?  What multiple does an investment bank (i.e. Goldman Sachs) use to value Uber, which is clearly a hybrid logistics company ? I’ll answer that next.