Illustration: Shoshana Gordon/Axios
The current pivot to profitability in the venture-backed corporate world is far from unprecedented. What’s new is the extent to which the gory details of the finances of former unicorn companies like Coinbase and Robinhood are now public.
Why is this important: A private company can fight quietly without its investors having to suffer any depreciation until the very end. When your finances are public, however, your struggles also become public.
- Last year’s permissive IPO market rained listings – and the associated public scrutiny – on hundreds of unprofitable companies.
How it works: When interest rates were low and liquidity was plentiful, start-ups realized they could raise large sums of money at multi-billion dollar valuations if they invested as much as possible in future growth. – a very expensive strategy sometimes known as lightning scaling.
- This strategy burns huge amounts of cash, and it tends to end in disaster if the cash stops flowing before the business reaches profitability. (Exhibit A: WeWork.)
- Now that money is more expensive and less plentiful, it has stopped flowing to almost all of these businesses.
An IPO does not mean that you are free at home. Robinhood, which raised $2.1 billion in its 2021 IPO, is a good example.
- This week, the broker specializing in millennials announcement losses of $295 million in the second quarter and fired 23% of its workforce – just months after cutting 9%. So far in 2022, more than 1,000 of its employees have lost their jobs.
- Or see yesterday’s WSJ and NYT stories on Coinbase.
The other side: Earlier IPOs found themselves with enough time, before the music stopped, to start generating cash.
- Airbnb this week announcement it has become so profitable that it can afford to spend $2 billion to buy back its own shares.
- Even the famous Uber that burns money announcement it was cash flow positive in the second quarter – although it still posted a loss after factoring in things like stock compensation and its stock investments in other companies.
- “This marks a new phase for Uber, self-financing future growth,” Nelson Chai, Uber’s chief financial officer, said in a statement.
The bottom line: All of the once high-flying tech stocks have seen their valuations fall. Those reductions are much lower for Airbnb and Uber, however — down 19% and 36% respectively since the date of Robinhood’s IPO — than for companies like Robinhood, which has lost more than 70% of its value. in its time as a public company.
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