This blog is the first in a short series of observations, thoughts and opinions from our executive director Bob Gillespie. Through this series, Bob will be sharing insights into the real estate tech world and how to invest in it. With over 20 years’ experience in consulting, technology, leadership and operations, he has a keen eye for tech trends and wise investments that makes him invaluable to us here at elmspring.
Unicorns and Racehorses
Unicorn this. Unicorn that. All I hear people talk about is unicorns. No, not the mystical creature, of course, but the privately held companies with valuations over $1 billion that have been deemed “unicorns”. Those elusive and attractive start-ups that continue to grow to IPO.
Image Credit: yosuke muroya | Flickr
The Real Story Behind Unicorns
While unicorn companies have been the hot topic in the tech arena over the last few years, the market does not seem to be in their favor. The nature of a unicorn company is to grow wildly through steady streams of venture capital. Their valuations become so inflated that once going public, they have a difficult time surviving the ups and downs of the market. Since 2014, The Wall Street Journal notes of the 48 venture funded tech companies, considered unicorns, 35 are below their IPO price. The unicorn model may benefit investors like in the short-term, but, once public, are they really worth the investment?
A View on Long Term Growth
While the unicorn is highly sought after, everyone is chasing the “valuation” and not the successful company. Don’t get fooled by some arbitrary, inflated valuation. I would rather look at something less sexy like racehorses, or something like a cockroach that can survive in nuclear war. A whole slew of steady, reliable racehorses are a much better investment than throwing darts at a bunch of iffy concepts hoping to find one unicorn. Find reliable companies that are poised to scale rather than concept start-ups. Our focus is on companies with good fundamentals that have measurable and sustainable growth metrics, real customers, revenue and cash. These companies, or “racehorses”, often have great returns.
Elmspring will continue to invest in the racehorses. While many companies gamble on the one in a million unicorns, we are placing our bets on those who have what it takes to finish the race. Hopefully, one of our racehorses will turn into a unicorn – that would be great. We start with quality businesses where the fundamentals make sense.