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  • Jack Lau

State of the Billion Dollar Startups Held by Mutual Funds


Dear Friends:

This is probably one of the longest breaks we had between blogs. Thank you for your patience. Some friends in the past few weeks have shown us their fantastic ideas and have asked us what we think. We are greatly flattered. Many great ideas have emerged indeed. But, as usual, we think that it takes more than great ideas but great people to succeed. And, by great, we don't mean just brilliance of the people. Rather it is the grit and mindset we keep talking about.

Perhaps we can close this year with a quick survey of the state of things. Just for fun.

Being a billion dollar company has become the holy grail for many startups. There is just the ring to the word --- 1 billion dollars. In fact, they used to be called the Unicorn --- supposedly rare. But, over the last few years, more and more of these unicorns have surfaced. In fact, many of them achieve unicorn status without even going IPO. (It used to be that most IPO was about $700 to 800M valuation when they went IPO. But those were of course the more traditional technologies. Gosh, that word "traditional" sounds so degrading. But, one wonders how many PhDs it really took to make a state of the art low power wireless chipsets. But, "traditional" they were.)

We have always wanted to find out how the supposedly unicorns fair along the way. Recently, we came across a Wall Street Journal article detailing the fate of many of these fast growing startups. And, we thought we would share with you some of the findings. And, we focus here those companies that are invested by mutual funds in this article. Held by Mutual Funds, these companies are easier to understand and study.

Source: http://graphics.wsj.com/tech-startup-stocks-to-watch/

About 50 companies were discussed in this report. The largest (in terms of valuation Uber which commands a whopping valuation of US$68 billion. The smallest ones are still worth US$1 billion. And, there are 9 of them, including 23andMe and Evernote. 23andMe is a DNA testing company which was founded by Anne Wojcicki, wife of the google founder, Sergey Brin. (At certain point we really need to talk about this growing field of DNA testing. There are articles and articles on this topic and how all of us eventually can do a personal DNA test and know in advance our propensity to get certain illness, and the likelihood of us getting cancer down the road). Evernote is widely popular notetaking software used by many college students and professionals.

In this study, most of the companies are still private. But, since they are invested by mutual funds, their valuations as perceived by mutual funds are transparent.

So, here are some observations on companies which we think some of us should know or are already familiar with:

  1. Jawbone, the consumer electronics companies which makes many popular wearables, has been completely marked down. Yes, that's right, based on Blackrock, Jawbone is now worth $0. No kidding. It was worth US$1.6 billion in January 2016. Talking about how brutal the business is.

  2. Docusign, a company which allows you to do digital signature, is worth $3 billion, has appreciated 316% since first investment in June 2012. WSJ called this company a software company, but really this signature company has serious implications in the financial sector as well. Interestingly though, digital signature is not valid under the Hong Kong Electronic Transactions Ordinance for government contracts, oaths, and court orders. (Source: https://www.docusign.com/how-it-works/legality/global/hong-kong)

  3. Uber, the revolutionary ride sharing platform, which expensed about US$2 billion in 9 months and has US$10 billion in cash, is worth 214% more since first funded. Uber is now expanding to UberEat in this part of the world. It is probably going to be more than just ride sharing. The bowed out from China of course is headline grabbing. And, this market definitely seems to be winners-take-all.

  4. Out of the 50 companies, 14 are worth less since day one. That means most of them have appreciated. And, with the exception of Jawbone which has dropped 100%, Evernote which has dropped 50%, and 4 others, most have not lost more than 30%. On the other hand, for the 36 gainers, 22 of them have gained more than 30%. In fact, 14 of them have gained more than 100%.

  5. Snapchat is going IPO soon. It will definitely be interesting to see. In their latest roadshow, they are comparing themselves to Facebook --- and not to Twitter. (http://www.wsj.com/articles/snaps-ipo-roadshow-message-were-the-next-facebook-not-the-next-twitter-1483007406) Some numbers to note though. Snapchat is generating about US$5 per user and has an annual revenue of about US$350 M (projected to reach US$940 M next year). It is gunning for a valuation of about US$25 billion. Apparently, three years ago, Facebook offered to buy Snapchat for US$3 billion.

  6. In this part of the world, Fintech is often talked about. Amongst these 50 companies surveyed, 3 of them are classified as Financial Services: Social Finance, Lending Club, and Klarna. The valuations of these three companies have changed only 0%, 9% and 2% respectively. (Of course, personally, we think that Docusign is somewhat a Fintech company as well, maybe more.) Only fair to say though, Lending Club has gotten itself into a number negative news recently with the CEO resigned, and the verdict is still out. (https://en.wikipedia.org/wiki/Lending_Club)

That's it , folks, for this year. We wish you a very prosperous new year. May the new year be the best for all of you. And, hope that all of us can contribute to this very exciting tech industry , as a practitioner, an investor, or simply an observer.

P.S. For those who are "Fans", May the FORCE continue be Strong with YOU! :)


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