Game of unknowns for businesses in 2016
- By Nuno Fernandes
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E-mail Shanghai Daily, February 19, 2016
Unicorns have to prove themselves
Unicorns are broadly defined as start-ups worth US$1 billion or more. Once rare and mythical, there are now more than 100 unicorns according to some estimates.
But the shaky economics of overvalued start-ups are starting to be exposed. The top 10 unicorns have supposedly combined valuations above US$150 billion, on less than US$5 billion in revenues, and they employ around 25 thousand people.
Once these firms are faced with competitive pressure from public markets, their value goes down, and creates some major disappointments. We are now reaching a turning point, which will hurt many investors, and only some of the unicorns will survive.
We are not yet in a bubble like the dot-com bubble of the 90's, but the recent dismal performance of many unicorns clearly reveals we are back to basics with respect to business models, investing and valuations.
So there are a lot of questions on the horizon for 2016. The character Ramsay Bolton in Game of Thrones says, "if you think this has a happy ending, you haven't been paying attention." Let's hope policy-makers, companies and the markets can prove him wrong.
Nuno Fernandes is Professor of Finance at IMD, where he directs the Strategic Finance program and also Finance Fundamentals for Executives, a new IMD "Global Leadership in the Cloud" program. He is the author of Finance for Executives: A Practical Guide for Managers.
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