Disruption: to throw into disorder, to interrupt. The term definitely has a negative connotation – a harbinger presaging chaos. But in the parlance of technology, it has an entirely different meaning. Whether it’s the sharing economy eating into demand for hotels or cars (think Airbnb or Uber,) or peer-to-peer lending bringing radical change to the financial services industry, disruptive technology is a force to be reckoned with, and from which no industry may be immune.
On the latter point, one need only look at the impact so-called Unicorns have made over the past year, and their non-traditional means of obtaining finance which eschews IPO’s (Initial Public Offering of stock shares). In case you’re not familiar with the term Unicorn, allow me to elaborate.
Unicorns are private companies with valuations of $1 billion or more, whose numbers have tripled over the past year, and are likely maintain that growth pace in 2016, changing the face of many industries along the way. This article will delve into disruption technology and potential Unicorns, and entertain possibilities that might just make you some money down the road. After all, Airbnb and Uber have evaluations more than 10 times giant competitors in the industry such as Hyatt and GM respectively, and early investors, including late and early stage venture capitalists, are making a bundle.
Credit Suisse, for one, worries that there is an overabundance of money floating around looking for a home, because many Unicorns are not going public. By the way, 2015 saw the number of these successful startups swell to 132 – triple the number from a year earlier! The availability of late-stage venture capital could lead to a repeat of the 1999-2000 dot-com bubble fiasco. In fact, Credit Suisse see the next several years as being the greatest technology investing opportunity in history.
Because of its nascent position and burgeoning middle class, China is poised to emulate the US’s technology spurt of two decades or so ago. But the same caveats prevail for the Chinese as for other investors in more mature economies around the world. There is simply too much capital available to be thrown at these potential Unicorns, some of which are undeserving of their investment status. But make no mistake, private capital, be it early-stage seed variety, or late- stage venture capital, will be the engine that propels these start ups.
For the behemoths like Facebook, Google, and the like, access to the massive funding of public markets will always be necessary to fuel their ambitious appetites for innovation and growth. But, as I mentioned earlier, many Unicorns have avoided the public markets for a variety of reasons. Not the least of these are the mountains of paperwork, and the voluminous reports required of public companies, and the gyrations of the share price and the attendant pitfalls. Another reason is that many of the entrepreneurs have no reason to go public to reap a financial windfall – they have lavish guarantees, incentives, and bonuses memorialized in their company contracts. So, if there is no need to cash-in via an IPO, why lose control and take on all the headaches of a public company?
It looks like it will be another exiting year for technology, with the disruptive and sharing economy continuing to grow and evolve. One interesting opportunity may be one the banks aren’t crazy about – the proliferation of peer-to-peer lending, as investors look for increased returns without the fluctuations inherent in the public stock market. It would be interesting to learn just how your life has been affected by these Unicorns, and whether you can profit from the phenomenon likely to unfold in the near future…