Technology consultant Jeffrey Lee Funk and Pomona business prof Gary N. Smith are not exactly bullish on the new high tech-dependent startups (unicorns) that everybody talks about. Lots of media interest and commentating, sure, but where’s the money? In a recent op-ed at MarketWatch, Funk and Smith warn, “Unicorn losses are unprecedented in the history of U.S. startups and threaten stock markets and the economy.”
Not what you heard? Think about this then: The authors, regular contributors at Mind Matters News, point out that many investors and analysts worry about China’s Evergrande Group’s current woes ($300 billion in liabilities). But Evergrand was once profitable. And the Ubers and Airbnbs? They’ve never been profitable and the liabilities are growing:
Unicorn losses are unprecedented in the history of U.S. startups. Among publicly traded unicorns, Airbnb ABNB, 1.09% has $7.0 billion in cumulative losses, Snap SNAP, -0.30% has $8.3 billion, Lyft LYFT, -0.85% $8.0 billion and Uber Technologies UBER, -0.11% has lost a jaw-dropping total of $22 billion. Before unicorns became all the rage, the startup with the largest cumulative losses was Amazon.com AMZN, -0.23%, with a now-modest peak of $3 billion.Jeffrey Lee Funk and Gary N. Smith, “Opinion: AirBnb, Snap, Lyft and Uber are just a handful of debt ridden, money-losing ‘unicorn’ stocks that investors should think twice about” at MarketWatch (October 25, 2021)
Many hundreds of non-US domiciled unicorns are in the same position, Funk and Smith note. If the market ever tires of funding their losses (or is no longer able to do so), the unicorns might have trouble meeting bills and wages. That’s generally when the curtain falls. The cumulative effect could be worse than an Evergrande fiasco.
The software industry has a term, vaporware, for exciting software that never becomes a reality. We may find out sooner than we hope whether unicorn profitability is the business version of vaporware.
You may also wish to read: The unicorn might be very profitable — if it existed, The statistical reality is that most new businesses flop. Jeffrey Funk and Gary Smith show that many famous AI-based businesses have lost billions for years. They list those that have done well.