64% of Unicorns are not profitable but Investors are looking for market opportunity instead

64% of the 100+ companies valued at more than $1B to complete a VC-backed IPO since 2010 were unprofitable, according to Pitchbook.

In Silicon Valley, investors don’t expect their portfolio companies to be profitable. “Blitzscaling: The Lightning-Fast Path to Building Massively Valuable Companies,” a bible for founders, instead calls for heavy spending on growth to scale in an Amazon -like fashion.

As for Wall Street, it’s shown an affinity for stock in Jeff Bezos’ business, despite the many years it spent navigating a path to profitability, as well as other money-losing endeavors. Why? Because it too is far less concerned with profitability than market opportunity.

Lyft, a ride-hailing company expected to go public this week, is not profitable. It posted losses of $911 million in 2018, a statistic that will make it the biggest loser amongst U.S. startups to have gone public, according to data collected by The Wall Street Journal.

On the other hand, Lyft’s $2.2 billion in 2018 revenue places it atop the list of largest annual revenues for a pre-IPO business, trailing behind only Facebook and Google in that category.

Take Floodgate, for example. The seed fund invested a small amount of capital in Lyft when it was still a quirky idea for ridesharing called Zimride. Now, it boasts shares worth more than $100 million. I’m sure early shareholders in Amazon — which went public as a money-losing company in 1997 — are pretty happy, too.

Ultimately, Wall Street’s appetite for unicorns like Lyft is a result of the shortage of VC-backed IPOs. In 2006, it was the norm for a company to make its stock market debut at 7.9 years old, per PitchBook. In 2018, companies waited until the ripe age of 10.9 years, causing a significant slowdown in big liquidity events and stock sales.

Rating: #RobertReview (IPO, VC, Unicorns, Fund-Raising): 9 | 10

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Unicorns aren’t profitable and Wall Street doesn’t care

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Published: 28th March 2019.

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64% of Unicorns are not profitable but Investors are looking for market opportunity instead