Viewpoint: Unicorns Don’t Like Winter

GMIC 2014 IMG_7836 Id pix smallUnicorns don’t like Winter!  by Bruno Bensaid, Founder, ShanghaiVest

Here we are again, another down cycle, or so we think. After all, the Shanghai Stock Exchange Composite Index took a beating this Summer, from 5,166 (June 12, 2015) to 3,005 (Sept. 15, 2015), wiping out the equivalent of the combined GDP of several smaller European countries.

VCs, however, seem unabated, if we believe the esteemed panel of investors speaking in Shanghai for the recent Silicon Dragon conference. “I love Winter” (read “I am ready to weather the storm”) or “the weak and unprofessionally run VC firms will suffer, we won’t,” and so on. One could only wonder if the Shanghai Stock Exchange along with other stock exchanges in its wake ever tanked.

Yet, a cold wind is already starting to blow on the tech investment ecosystem. The trickle-down effect of the Stock Exchange’s crisis of confidence is impacting large capitalization startups, and growth equity investments, like we already see with Meituan “struggling” to bump its January 2015 valuation by 100% in nine months and perhaps settling for “only” 50% valuation growth. And it’s impacting Mogujie, the Chinese Pinterest, which could soon lose its “Unicorn status,” thanks to Carlyle’s getting cold feet on an investment. Early-stage startups also will suffer, especially the ones that don’t bring much to the market. But these startups should never have been funded in the first place, so it is only divine justice they be axed.

But what about China Unicorns? These mystical animals, which only exist in a few entrepreneurs and VCs’ dreams, carry the much envied moniker of “my last round’s valuation was higher than $1 Billion”. Nothing less. As of late, China seemed to be adding a Unicorn a week – as if they reproduced faster when the pollution index went up a notch.

But can they pass winter without losing a bit of fat, like their better-known hibernating mammal counterparts? Some will, but most won’t. Their pasture gets greener as the IPO window widens and with market expansion. Unfortunately, IPOs in Shanghai or Shenzhen are virtually stopped thanks to our frenzied Summer.

Some idealists might opt for the “新三版 (pronounce: xin san ban)” – the New Third Board (NTB) – an OTC board opened in Beijing three years ago. But that might be a terrible downgrade for such a noble animal as a unicorn. According to the National Equities Exchange and Quotations (NEEQ), which runs the New Third Board, 577 companies had raised a combined 30.3 billion yuan ($4.88 billion) “only” by June 2015 (source CNBC). That’s the valuation of a mere one or two of our unicorns.

US IPOs? Nah… Alibaba is a living example of a proper beating of its stock in the past year, and Chinese tech tickers have been disappearing from the NYSE and NASDAQ boards at supersonic speeds in hopes of their owners re-listing the company in China.

Institutional Investors, always with a pulse on the stock market, will also feel more pressure to withdraw from their commitments to the private equity and venture capital asset class, especially when the general partners of these funds keep feeding their stallions with ever more grass, but with no real exit in sight.

No, ‘Dear VC friend’, you won’t hold your shares in Xiaomi forever like a luxury watch being passed from one generation to another. Someday the friends lending you money will knock at your door to claim their due. Where will you be then?

Full presentation at Silicon Dragon Shanghai 2015 can be downloaded here:


By Bruno Bensaid

Founder, Shanghaivest


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