TheFantasyWorldoftheBillionDollarClub

Ihopeyou'renotbusyforaboutamonth...ManStoner,UpinSmoke,Paramount,1978Therewasatimewhenacoupleoflateteen/earlymillenniumswouldgettogether,maxouttheircreditcards,borrowfromtheirparentsandanyonewhowouldlistentothem,work(andsometimessleep)inagarageandemergewiththenextgreatidea.Notanymore.Now,theyseewhatsomeoneelsehasdonegiveitanewtwist,newcoatoflipstick,anincomprehensiblenameandtrotofftoSandhillRoadand/orotherVC(venturecapital)organizationsaroundtheglobetocollectafewhundredmillionsotheycanstartoutinstyle.Whataretheyworth?Billions.Whathavetheysold?Well,theyclosedafewordozenVCdealsandhaverisentotheeliteunicornstatus.Isntentrepreneurshipgrand?Unicornstatuswasinitiallybestoweduponthecategoryoffirmsvaluedatover$1B.

Today,thelowendis$10Bandentryintheclubwillprobablyriseto$100Binnotime.Andjustthink,wecancreditthisalltotheiNetthatspeedsinformationaroundtown,aroundtheglobeintheblinkofaneye.

GlobalContactTheInternetmayhavebeendesignedasameanstohelpengineers,academicsandscientiststoexchangeinformationmorerapidlybutithasquicklybecomethetoolofcommerceandthewayfolkscommunicateacrossthetable,acrosstownandacrossvastoceans.Innotime,youcanexchangenews,data,imagesbuy/sellgoodsandmakeafoolofyourselforinsult/abusepeopleyoudontevenknowwithaclickofthemouse.Itsfantastic.

Ifitwerentfortheused,abused,misusedInternettherewouldbeuttersilence.Instead,everyminute:10Madsaredisplayed500Ktweetsaresent7Mmessagessent3.5piecesofcontentshared100hoursofvideouploaded

6.9MFacebookmessagessent$134KAmazonsalesmade1,572,877GBofIPdatatransferredAndintwoyears,therewillbe3xmoreconnectedthingsthanpeopleonEarth.Wellbedriving13xmoremobiletrafficanditwillallproducemorethan5ZB(Zettabytes)ofdatathathastobestored.WhenPedrowasaskedhowlongitwouldtake,hesaidAweek.Imeanaday.Aweekday.AllonthelowlyglobalbackboneandtechnologythattheUSgovernmentinitiallyfunded.Nowondereverygovernmentfeelsentitledtolisteninandseewhatsgoingon.Exceptfortheunderappreciatedhardware,softwareandserviceprovidersitsaregularmoneymakingmachine,sowhynotinvestbig!

Up,UpandAwayNewstartupsgetfundedalmosteverydaybecausetheyhaveanewidea,newwaytointerest/attractpeoplethatwillmakealloftheearlystageinvestors(andearlyemployees)amazinglyrichforonlyafewhundredmilliondollarsinvested.Fundsarerushingtogetonthetableearlybeforethestakesgoup.

Ofcourse,notallofthemwillsurvivetogopublicbutVCsdontcare,whichiswhytheyinvestin10orsoofthesamething.Ifthecompanyburnsthroughthepaltry$40$80Mtooquickly,noproblemtheysimplygobackanddipintothemoneywellwithanevenbiggerideaandtheyregoodforanothercoupleofyears.Afterall,lookattheirvaluation.Besides,theyreprivatefirmssotheydonthavetoplaybythesamerulespubliccompanieshavewiththingslikequarterlyfilings,SEC(SecuritiesandExchangeCommission)documentslikeauditednumbersofrealusers(notdeceased,onetimers),realtraffic(notbots),revenuesandburnrate(howfastyouregoingthroughthestashofcash).Thatsoneoftheperksofbeingprivatevs.public.Youdonthavetotellthema****thingifyoudontwantto!Sofolkscanlettheirimaginationsgowildandtheydo.Beautyisintheeyeofthebeholder,sogetinbeforethissuckagoesballistic.NoneofthemheardManStonerswarning,Hey,heydon'ttakethose,man.Ofcourse,itmaynottakeoffbecausehistoryhasanuglywayofrepeatingitselfinbusiness.

ThatsSoYesterdayWhiletheindustrymayhaveexperiencedabubble/burstsituationafewyearsago,theresnoreasontothinktherapidadvanceofunicornfirmswillencounterthesamedisaster.Ofcourse,theresnoreasontothinkitwonthappenagaineither.

Backin19992000,wehadthisthingcalledthedot.combubble.

Itwasabeautifulthingpixiedust,rainbowsandgoodtimesthatwouldgoonforever.Untiltheydidnt.Backinthosedays,peoplewerebettinghugesumsofmoneyonyoungcompaniesrunbyfolkswithnotrackrecordinbusinesswhofounditfunandeasytospendthechunksofcashpeoplegavethem.Talkingabouttodaysenvironmentbutsoundingalotlikethe90s,BillGurley,aVC,toldtheSXSW(SouthbySouthwest)folks,ThereisnofearinSiliconValleyrightnow.Acompleteabsenceoffear.Ofcourse,thereareentrepreneurswhodidnttaketheeasyroutetogettingtheirideasoffthegroundandgrowingtheirfirms.TakeDaymondJohn,ofSharkTank,andLarryOConnor,ofOWC.John,ofSharkTank,startedaclothinglinecalledFUBU(ForUsByYou)withasecondmortgageonthehouseheandhismothershared.HelikestolookatboringthingslikeCOG(costofgoods)andsales,marginsinsteadofnebulousnumberslikesomehowgettingonepercentofa$50Bmarket.Hedoesntthinktheideaofdropping$1Mon100untested/unprovencompaniesormanagementteamsisareallyswiftmove.Beinginlinewithcomparablesinthemarket(revenuesandspending)doesntmeanmuchwhenthemarketcorrectioncomesanditwillcome.Actually,hecallsitdumbmoney.Likemostsuccessfulentrepreneurstoday,bothJohnandOConnorhadanidea,believedinit,andfoundawaytomakeithappen.WhenhewastuningApplecomputersbackin1988,OConnorthoughtimprovingsystemswastooexpensiveandsomethingmostuserscoulddothemselveswiththerightstuff.HestartedOWC(OtherWorldComputing).inhisfolkskitchenandbarn.HecontinuedgrowingtheproductlinesfortheApple,AppleIIandbeyondsystems.Today,heandhisteamfocuseongoodproducts,customervalue,customerserviceandohyeah,retainedearnings.Fortunately,therearealotofgreatfirmslikeFUBUandOWCtodaythathavedeeprootsandresistthetemptationofthefast/easymoneyroute.Theyalwaysremembertheirfirstsale,theirfirstcustomerthatlaunchedthecompany.Privateorpublic,theyknowitsaboutthecustomer,notthedeeppocketfolks.PedrolookedatthequickandeasyVCfundedapproachandsaid,Kindalookslikeatoothpick.Ofcoursethereisanotherfactortoconsiderglobaleconomiccyclesthatoccurregularlyasmarketsadjusttotryandequalizesupplyanddemand.

UpsnDownsSinceperhapsthebeginningoftimetherehasbeenanimbalanceinsupplyanddemandwhichheldswayoverthepriceofgoods,productsandservices.Excessdemandproduceshighercosts,higherprofitswhileexcessproductiondrivespricesandprofitsdown.Thatmaybewhytheyrecalledbusinesscycles.

Forexample,whentheresashortageoftechnologyproductsflashmemory,harddrives,CPUs(centralprocessingunits),GPUs(graphicprocessorunits),rareearth,younameit,demandandpricesgoup.Togettheirunfairshare,firmsrampuptheirproductiontotakeadvantageofthedemandandincreasedmargins.Thensuddenly,theresaglut.Pricesgodowntokeepthelinesrunningandmarginsdisappear.Ithappenswithalmostboringregularitybecauseitsaconstantguessinggameastowhatshot,whatsnot.

Ofcoursethatwillneverhappenintherarifiedgamewereplayingtodayyouknow,giantsumsofmoney,skyhighvaluationsandeveryonelookingtoscorewiththenextblockbustercompany.Ohsure,forsomeitwillendbadlyandforscoresofothers,ithasbutmostassuredlynotwiththeoneyoureinortheoneyourmutualfundisinvestedin.Afterall,everyoneknowsunicornsdontreallyexist,sohowcouldtheydisappearordie?

BeautifulYes,weadmitunicornsdolookbeautifulinourdreamsbutunfortunately,atsomepointintimewehavetowakeup.Andwhenwedo,thepixies,mermaidsandunicornsdisappearsoasmuchaswedlikethemtoexist,weknowtheyreallydont.

ManStonerlookedatwhatwasgoingonandsaid,Ithinkwe'reparked.