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When Aileen Lee, the founder of Cowboy Ventures, an investment fund, gave the word “unicorn” its current connotation in 2013, she saw the term as betokening something both wonderful and rare. Back then, that made sense. In 2013 Ms Lee found just 38 unicorns in America.
Today there are 156, and slightly more than that elsewhere, according to CB Insights, a data provider.

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After the debacle of the dotcom bust, things got more serious. As size became increasingly valued, ways to build it were developed. Today there is a “new regime of company formation”, according to Martin Kenney and John Zysman, of the University of California in Davis and Berkeley, respectively, the authors of a paper entitled “Unicorns, Cheshire Cats, and the New Dilemmas of Entrepreneurial Finance”. The design and manufacture of unicorns has become industrialised, and many of the ingredients needed are available on tap as online services. Smartphones let the companies distribute what they offer at home and abroad, social media let them market it and cloud computing lets them ramp up as demand grows.

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After the dotcom bubble burst, new rules intended to protect investors, particularly the Sarbanes-Oxley Act, made going public much more burdensome. The JOBS Act of 2012 subsequently increased the number of shareholders beyond which startups must disclose financial information from 500 to 2,000, excluding holders of stock options. That made it easier to stay private longer.
And there was no significant shortage of private capital willing, indeed eager, to help with that. A dearth of interesting alternative investments and endemic fear of missing out saw institutional investors, often from hedge and sovereign-wealth funds, eager to join in ever larger rounds of financing. As Randy Komisar, a venture capitalist at Kleiner Perkins, puts it: “Silicon Valley’s lust for scaling...is more a result of the desires of capital than the needs of innovation.” Last year investors financed more than 120 rounds of more than $100m, CB Insights says.

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At last, though, according to Barrett Daniels, an IPO expert at Deloitte, an auditing and consulting firm, a number of factors have come together to bring this period of reticence to an end. A lot of venture-capital funds were started around 2010, and they mostly have a ten-year term; investors want to cash out. A number of public listings last year showed that public markets have a big appetite for tech shares. And the window of opportunity may soon close; a global downturn would both limit investors’ appetite and severely test some of the unicorns’ business models.
Much the same might happen if a number of IPOs failed to live up to their hype. So again the incentives are to go big and go quick. The move to the exits is not quite a stampede, but it is a pretty concerted group trot, even a canter. As many as 235 venture-backed American firms have plans to go public this year, says Ms Smith.

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But what they also lack, in 11 cases out of 12, are profits. Today, according to Jay Ritter of the University of Florida, 84% of companies pursuing IPOs have no profits. That is remarkably high. Ten years ago, the proportion was just 33%. To see profitlessness as rampant as today’s you have to go back to the peak of the dotcom boom in 2000.
Back then the promise (one soon and spectacularly broken) was that profits would follow once the companies grew. This time round, though, the profit-free companies have already grown. Indeed our panel has burned through $47bn doing so (see chart 2); its companies got through $14bn in 2018 alone. This is profligate even by the standards of Amazon, which before and after its IPO was seen as a particularly profit-averse company; it had cumulative losses of $3bn between 1995 and 2002. Uber lost almost $4bn just last year, excluding exceptional items.

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If all this dearly bought growth has not supplied profits, what will? The unicorns have three answers: yet more growth; more spending by existing customers; and higher margins. The first is not necessarily that plausible. Among the companies in our panel that disclosed the number of customers they have in America, growth slowed to 9% last year. Though priding themselves on their overall user numbers, the firms in our panel are reluctant to reveal details of customer churn—how often customers switch to rival firms or switch off completely.
What is more, few of the firms sit behind barriers to entry as strong as those that protected Alibaba, Facebook and Google. They can lose customers as well as gain them. Lots of property companies can rent out office space, as WeWork does. Spotify customers can get music from Apple, too. Drivers often toggle between Lyft and Uber apps; so do passengers. There are already several big Chinese e-commerce firms to choose from.

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Summary: A hype company with a hype product and not the AWS of Real Estate
In my opinion, WeWork sells a hype product with actual (mid and long term) negative productivity impacts for its Corportae customers and questionable impact on its original start-up customers.
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Before now everyone runs out and tries to short the hell out of WeWork after the IPO, one word of caution: It could easily be that WeWork floats only a small amount of stock compared to its market cap in the beginning. This could mean that for some time the stock price can clearly go to anywhere, especially if for instance Softbank wants to pump up the performance of its Vision Fund I until the end of the year. So I would recommend to sit back, relax and get some Popcorn instead.

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