“The best way to predict the future is to invent it.”

At Re/code, Noah Kulwin on investor Fred Wilson:

Last week, Silicon Valley freaked out when Fidelity lowered the value in its stake of Snapchat, Zenefits and other startups in which the investment conglomerate holds equity. In Snapchat’s case, it reduced the company’s worth from $16 billion to $12 billion. Zenefits’ $4.5 billion valuation was cut in half.

Union Square Ventures’ Fred Wilson, a longtime venture capitalist known for his early bet on Twitter, says in a blog post that these write-downs are going to keep on coming.

He argues that the “blurring of the lines between the public and private markets” means that as the economy slows down (or the air gets let out of the tech bubble, take your pick), the valuations of unicorns like Snapchat and Zenefits that have taken funding from late-stage growth giants like Fidelity are going to continue going down.

As Alan Kay best put it, “The best way to predict the future is to invent it.”

If angel investors want to pop the bubble, or let air out the bubble or do whatever the fuck they want to do with the bubble, all they need to do change the amount of money they’re putting into these ‘unicorns’.

Also, can we stop using the word, ‘unicorn’?

Categories:

Business, Finance

Must Be Nice

At Re/Code, Arik Hesseldahl explains how venture capitalists cover their asses and cash:

It turns out that for companies of a certain size, it’s not that hard to get to unicorn status, provided they’re willing to give their investors a lot of assurances that essentially cover their potential losses. The one thing common to every one of these funding deals, the firm says, is that in every case — all 37 of them — investors demanded a “liquidation preference.”

The phrase refers to language often found in an investment contract — and typical to most VC investments — that gives certain investors the right to get paid first ahead of other parties — such as founders or management — in the event the company is sold. If the company sells for a price that is lower than the valuation the investor paid, that investor is the first one in line to receive the proceeds of the sale until they’re made whole. And if the company sells for a higher price, they’re first in line to reap a share of the profit.

What that ultimately means is the investors are taking on very little risk when investing in unicorns, because they stand almost no risk of losing their money if the company goes south.

It’s a win-win world for VC firms.

Categories:

Business