Tag Archives: Unicorns

U.S. Financial Markets Have Become A Giant Mirage Built On A Foundation Of Fraud, by Michael Snyder

Posted on April 18, 2021 | 1 comment

They’re throwing billions at companies that will never generate a dime of profits. From Michael Snyder at theeconomiccollapseblog.com:

Would you pay more than 100 million dollars for a single deli in rural New Jersey that had less than $36,000 in sales during the last two years combined?  I know that sounds like a completely ridiculous question, but the stock market apparently thinks that deli is worth that much.  On Thursday, the Dow Jones Industrial Average closed above 34,000 for the first time in history, and investors all over the country cheered.  But this financial bubble is not real.  It is a giant mirage that is built on a foundation of fraud.  Investors have lost all touch with reality, and in this sort of euphoric environment a small deli in rural New Jersey can literally be valued at more than 100 million dollars…

The Paulsboro, New Jersey-based Your Hometown Deli is the sole location for Hometown International, which has an eye-popping market value despite totaling $35,748 in sales in the last two years combined, according to securities filings.

“Someone pointed us to Hometown International (HWIN), which owns a single deli in rural New Jersey … HWIN reached a market cap of $113 million on February 8. The largest shareholder is also the CEO/CFO/Treasurer and a Director, who also happens to be the wrestling coach of the high school next door to the deli. The pastrami must be amazing,” Einhorn said in a letter to clients published Thursday.

For young people getting ready to graduate from high school and go to college, don’t waste your time.

Just open up a small deli and go public.

Soon you will be a multi-millionaire.

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Posted in Banking, Business, Financial markets, Investing

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Unicorns & Non-Unicorns Hung Out to Dry: As SoftBank Licks its Wounds, Startup Funding Fizzles, Shutdowns & Layoffs Spread, by Wolf Richter

Posted on February 25, 2020 | 1 comment

Wolf Richter surveys the weird, weird world of Silicon Valley finance. From Richter at wolfstreet.com:

The out-of-money moment is here. The party is over. But it sure was fund, so to speak, while it lasted.

It’s now a near daily litany: Startups, once assured to be fed endless cash to burn, are laying off people or are shutting down entirely as funding for them dries up, and as exits for investors get tough after the recent IPO fiascos, including Casper, Lyft, and Uber, and the messily scuttled IPO of WeWorkthat has pulled the rug out from under SoftBank.

San Francisco startup Starsky Robotics, which tried to develop autonomous-with-remote-human-control-trucking technology, and which had raised over $20 million in four rounds, has laid off the majority of its engineers and office staff after investors backed out of a funding round late last year. A potential buyer with deep pockets has not yet emerged either, senior VP Paul Schlegel, whose last day was January 31, told FreightWaves.

But it’s not the autonomous-driving industry overall that appears to be cutting back: According to Schlegel, 85% of the laid-off engineers have been hired by Google’s Waymo, GM’s Cruise, TuSimple (which has raised nearly $300 million, including from UPS), and others. It’s just that this company ran out of funds and investors refused to throw more money at it.

Then there are the cutbacks and layoffs among startups in the consumer DNA testing space, which has gotten tangled up in all kinds of privacy scandals, and now a drop in demand, but which received billions of dollars in funding over the years.

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Posted in Banking, Business, Financial markets, Investing, Money, Technology

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The five scary new rules of upside-down capitalism, by Simon Black

Posted on November 21, 2019 | Leave a comment

Businesses are now expected to do all sorts of thing, including toeing the line on today’s politically correct bromides, but they’re no longer expected to make money. From Simon Black at sovereignman.com:

Roughly 23,000 years ago in modern-day Israel, a small tribe of ex-cave dwellers built a tiny village near the Sea of Galilee that may have been one of the earliest agrarian societies in human history.

Archaeologists discovered the site more than thirty years ago.

And they found tens of thousands of well-preserved seeds and agricultural tools, suggesting that the people who lived there planted a great deal of food in the fertile lands nearby.

As historian Will Durant once wrote, “the first culture is agriculture.” And he was right. Civilization as we know it has its foundations in agriculture.

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Posted in Business, Capitalism, Debt, Financial markets, Government, Morality

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Meals on Broken Wheels: Uber Eats, GrubHub, DoorDash & Postmates, by Wolf Richter

Posted on November 17, 2019 | Leave a comment

It’s difficult to see how you can make money with a food delivery business, especially when all sorts of well-funded companies are entering the business. From Wolf Richter at wolfstreet.com:

The fatal flaw of meal-delivery unicorns.

What do DoorDash, GrubHub, Postmates and Uber Eats have in common with Lassie? Nothing. They’re dogs; Lassie’s a superstar. What do they have in common with each other? Everything. They take the world’s second oldest profession — Babylonia had delivery boys — sprinkle it with tech dust, click their ruby slippers, chant “There’s no place like Silicon Valley” and hope to become unicorns. (By the way, since unicorns are entirely mythical, wouldn’t the Valley be wise to pick another moniker for its wannabe superstars?)

There’s no secret to success in tech. But like hitting a 98 mph fastball, it’s easy to describe, nearly impossible to do: Create a great product that can scale. Even better if you can build a patent moat around it. If, after five hard years of R&D, you create killer software at a cost of $100 million, then the first product you ship for $1,000 comes at a loss of $99.99 million. But by the time you’ve sold your millionth unit at almost no additional cost, you’ve grossed a billion. That’s scale.

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A Fake Letter To Fake Employees On The Verge Of A Modern IPO, by Jason Gay

Posted on October 6, 2019 | Leave a comment

An imagined letter from a hypothetical executive of a made up Silicon Valley unicorn. From Jason Gay at the Wall Street Journal via zerohedge.com:

ILLUSTRATION: ZOHAR LAZAR

To the staff:

Folks, I know everyone was excited about cashing in on our upcoming public offering, but it looks like this whole “profitability” craze is here to stay, at least for a while. We’re going to have to delay the IPO. Believe me, I am as disappointed as you are. I’d already picked out four private islands! Which technically would have been—yes—my own archipelago. Sigh.

In the meantime, we’re going to have to tighten up until this businesses-should-make-money fad blows over. Here are some company-wide decisions, effective immediately:

After great consideration, we are going to sell the private jets. This is a decision that is both symbolic and practical. It was not a good look for us to own a fleet of Gulfstreams. It was especially not a good look for us to fly them to Rome for Thursday pizza nights.

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Posted in Business, Economy, Financial markets, Humor

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The Profitless Prosperity Sector Will Collapse… by Adventures in Capitalism

Posted on January 6, 2019 | Leave a comment

There are a lot of hope-and-dream companies sucking up tons of money but generating no profits, with no prospect of doing so in the foreseeable future. The profitless prosperity sector is headed for trouble. From Adventures in Capitalism at adventuresincapitalism.com:

Near the culmination of all great stock market bubbles, at least one of that cycle’s supposed luminaries suffers an epic collapse because of fraud. As a result, fresh capital is restricted from that sector when it is needed most, leading to further crisis and a winnowing out of the sector as competitors cannot raise additional capital. Remember; suckers are always willing to finance bad businesses, but fraud means you immediately sell. It is this fear of endemic fraud tarnishing a whole sector, not economics, that finally ends a bubble.

Following Enron; capital was restricted from pipelines and energy trading. The collapses of WorldCom and Qwest led to a slow-down in fiber-optic buildouts. After the collapses of Ivar Kreuger and Samuel Insull, there was a multi-decade decline in conglomerates and holding companies. Following the collapse of Lehman Brothers, there was a multi-year dearth in underwriting archaic structured products and I’m sure the collapse of Madoff led to a decline in Ponzi investing. There are always second order effects in the sectors where these companies were previously shining lights—along with a lot of carnage. As a rule; if the biggest players were cheating a lot, even the honest guys were cheating a little. With Tesla (TSLAQ – USA) beginning its death rattle it’s worth considering what will happen to the rest of the Profitless Prosperity Sector.

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Silicon Valley’s “Death by Overfunding”: Next Unicorn Collapses, by Wolf Richter

Posted on July 11, 2017 | Leave a comment

Silicon Valley’s latest infatuation with “concept” companies that may make money in some distant future is fading. From Wolf Richter at wolf street.com:

When the ocean of hype turns toxic.

San Francisco-based Jawbone was a unicorn whose valuation peaked at $3.2 billion in 2014. Past tense because the maker of fitness trackers and other gadgets began quietly liquidating last month. And it’s being sued by vendors that claim they’re owed money, according to Reuters. Yet, Jawbone had raised nearly $900 million in equity and debt capital. And it blew this money.

Jawbone’s liquidation was first reported by The Information on July 6 and confirmed on Monday by Reuters. It’s the second largest failure of a venture-backed startup in terms of money raised, behind the bankruptcy in 2011 of solar-panel maker Solyndra.

Top venture capital firms — including Sequoia, Andreessen Horowitz, Khosla Ventures, and Kleiner Perkins — had invested in Jawbone. In September 2014, it raised $147 million at a valuation of $3.2 billion. In February 2015, it raised $400 million in debt, of which $300 million from BlackRock. By November 2015, with prospects curdling, it laid off 15% of its workforce.

In January 2016, when VC firms refused to throw more money at it, Jawbone’s president Sameer Samat, who’d arrived from Google seven months earlier, went back to Google, and in the same breath, the Kuwait Investment Authority led a $165-million Hail Mary investment in the company.

It was a huge “down-round” that slashed Jawbone’s valuation by nearly 55% to about $1.5 billion. Getting something at half-off must have been too tempting. Similar down rounds have since bedeviled the startup scene.

Jawbone started making stuff in 1999 – headsets, speakers, and the like. In 2011, it entered the hot field of fitness trackers. But it never got to 5% market share, slammed by wearables made by Apple, Samsung, Xiaomi, Garmin, TomTom, Moov, etc., and by crashed IPO darling Fitbit. Fitbit went public in June 2015 at an IPO price of $20. Within weeks, shares hit $51.90. They closed on Monday at $5.23.

So what killed Jawbone? Why didn’t some company with deep pockets just buy it, as it happened countless times in recent years? It doesn’t matter for venture investors that these startups, once under the corporate mantel, were often just shut down. A profitable exit is what matters. Apple, Cisco, IBM, Microsoft… they’re all buyout machines. Why not Jawbone a few years ago, when it was still hot? What kept them from buying it?

Its valuation, according to Reuters. At $3.2 billion at the peak, it had been driven to a level where no one wanted to touch it.

To continue reading: Silicon Valley’s “Death by Overfunding”: Next Unicorn Collapses

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