It has been called “unicorn fever”, it is a financial pathology that is contaminating the planet of technological investments, and whose spread is accelerated with the Covid-19 pandemic. Wall Street, but also Main Street, consider it a virtuous phenomenon because it channels endless resources in support of visions put into practice by start-ups, or by innovative companies, especially if analyzed through the prism of the new post-pandemic normal. But beware, finance historians say, because unicorn fever could be the embryo of a new bubble.
Let’s start with a fact: today there are almost a thousand start-ups all over the world whose value exceeds a billion dollars and for this reason they are defined as “unicorns”, named after the mythological white horse with a horn on its forehead and endowed with magical powers. To understand the breadth of the species just think that in 2015 there were eighty unicorns, and they were already considered many. The proliferation of the last five years is considered phenomenal as the fact that today it is not start-ups that are looking for investors, but those who are looking for new ideas to finance. “You don’t know which way to look, it’s becoming something of a wild west,” Roy Bahat of Bloomberg Beta, Bloomberg’s start-up investment arm, tells the New York Times.
The phenomenon, which previously mainly interested the United States – former historical unicorns are Airbnb, Facebook and Google – today embraces the whole planet, from China to India via Canada, France, Germany, United Kingdom, Brazil, Israel, Emirates and Australia , although there is the greatest concentration in the US. There are 977 of them for a total value of 3,198 billion dollars, according to the CBInsights ranking, where no Italian companies appear.
The start-up financing frenzy has accelerated with the coronavirus. In the pandemic, people and companies have increasingly relied on technology, creating boundless prairies where they can ride, in many directions. Towards artificial intelligence, nuclear technology, electric vehicles, space travel, and technology for mass consumption (such as food delivery apps) in areas considered capable of changing the world, in the aftermath of a decade in which technology dominated the stock market.
Investors and founders have therefore adopted the “carpe diem” mentality, seizing unrepeatable opportunities capable of shaking consciences and markets. The pandemic has changed every aspect of society so much that startups have made five years of progress in one. The result is a booming ecosystem of high-value, cash-rich young businesses in Silicon Valley and beyond, which are expanding at breakneck speed. With the dream of focusing on the Apple of the future (which today is worth 3 trillion dollars).
The phenomenon has macro relevance on two dimensions. The first is the “great resignation”, the voluntary dismissal (4.5 million in November 2021) to pursue one’s dream of a start-upper. The other is the emergence of new hi-tech districts beyond Silicon Valley, for example in the South Belt, from Arizona to Florida. In the US alone, start-ups raised 330 billion in 2021, almost double the 2020 record of 167 billion, according to PitchBook. The number of technologies that exceeded one billion dollars in value in 2021 was greater than in the previous five years together. And since the start of 2022, three start-ups have achieved staggering valuations: Miro, a digital whiteboard company, was valued at $ 17.75 billion; Payment company Checkout.com jumped to $ 40 billion; and OpenSea, a token trading start-up (known as NFT), orbits around $ 13.3 billion.
A real Eldorado which, however, risks dazzling by transforming the boom into a bubble. The Cassandras of Wall Street recall in 2000 the warning signs of the Internet chasm, archived as a “dot.com bubble”. Or when the default of two Bear Stearn hedge funds in the summer of 2007 marked the beginning of the subprime mortgage crisis. Some data, therefore, must be read carefully, says the NY Times: the urgent increase in interest rates and the uncertainty on the Omicron variant that have already deflated the values of technology. In addition, shares of publicly traded start-ups last year plummeted and one of the first start-up IPOs planned for this year has been postponed (Justworks, a human resources software provider), while the price of Bitcoin it has dropped nearly 40% from its peak in November. But above all the greatest risk element is represented by the post-pandemic mentality for which “every single novelty is the new normal”. A potential distortion that could turn unicorns into an endangered species.