Some start-ups reaching “mythical valuations”, says advisory firm
Companies without a sustainable USP are at risk of being over-valued, new analysis has revealed
Many start-ups are reaching "mythical valuations", as Unicorn companies without an adequate unique selling point or platform are attracting the same astronomical valuations as more sustainable companies.
The problem with this sub-set of companies, dubbed 'Icarus', is that they run the risk of eventually devolving into the embedded 'features' of other products, yet valuations are not reflecting this, advisory firm Magister Advisors, which carried out the analysis, has claimed.
Victor Basta, managing partner of Magister Advisors, said: "Microsoft's market value at IPO was $500 million. Cisco's was $300 million. Today an eye-watering 100 plus private companies are valued at more than $1 billion. To warrant this, each must have enduring long-term value, derived from either being a global 'platform' company, or at the very least a very high value product business. In our view there are some significant deviations from this essential rule."
Pointing to companies such as Shazam, Magister Advisors says that some high-profile, highly-valued companies would be best deployed as part of an existing platform business, such as Google or Apple. The researchers also mention Twitter as an example of what can happen to a company once innovation slows down.
It has been said that the volatile share prices of Facebook and Twitter could be hurting start-ups trying to raise funding, as the unpredictability has made investors more wary of the tech sector.
"Inevitably our Icarus list will be controversial but we highlight Pinterest, Shazam, Evernote and Snapchat as Unicorns with a serious long-term risk of being embedded our of independent existence," added Basta. "Their current valuations are essentially skyhooks and therefore unsustainable.
"We've traded a market bubble for specific company bubbles, inflated by the ready availability of venture capital chasing the next big thing."
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