In the current scarcity of growth, we should use a kind of logic to capture the next super unicorn

Editor’s note: This article is from WeChat public number “e-agent Internet overseas wealth management expert” (ID: iedaili), authors Yang Mulin, Chen Zhijie.

Before reading, it is recommended to look at it first:

How big is the “flywheel” of the Chinese unicorn company? | New Economy Unicorn (1)

IPO is cold, how big is the valuation bubble for the unicorn | New Economy Unicorn (2)< /a>

Wind Control Logic for Unicorn Enterprises | New Economy Unicorn (3)

A very interesting phenomenon. For a long time, the capital market is not investing in a unicorn or preparing to invest in a unicorn. Those institutions holding a large number of unicorns stand on their own. The top of the venture capital organization “scorn chain”. Overnight, it seems that everyone is talking about unicorns, so that the unicorn’s battlefield is extremely hot, not only the market competition between enterprises, but also the battle behind the venture capital institutions.

Investors who lost their gold investment opportunities such as Baidu Ali Tencent Jingdong are eager to capture the next super unicorn in the market, on this road, A batch of enterprises and investors have fallen, and another batch is rapidly emerging.

In the mixed unicorn battlefield, investors are more like betting, because the technical barriers of many subjects hinder investors from accurately controlling their actual situation, not just investors, but even unicorn companies. The management team does not know whether their business model can successfully seize the industry track, and events that often lead to unscrupulous financing often occur. What kind of logic should we use to capture the next super unicorn in the midst of growing scarcity?

How to capture the next super unicorn?| New Economy Unicorn (4)

Scarcity and player scarcity and growth

Unlike entrepreneurs who stand on Earth to see the Earth, investors are standing on the moon watching the Earth. The basic logic of investors and entrepreneurs is different. Entrepreneurs need to go from one point to the line to the full scale to maximize the lifeline of the industry. What venture capitalists value is whether you can have this point. With enough stamina to spread out, will you be the one who won the last. So, the scarcity and growth of the unicorn’s track is particularly important, and investors’ analysis of the ecology of the entire track is important.

So first you need to select the track, which industry markets have not been fully developed or will be expected to grow at a high speed in the future. After the track is determined, the competitors on this track will be disassembled and analyzed. Whose basics? The best, who has the core competitiveness in the future is the strongest, thus screening out the leading enterprises in the industry.

How to choose the track? This question is very brain-burning for ordinary investors. Because the choice of track is very demanding for the macro situation and market analysis, it is like the hot SaaS software service section. You ask a lot of people that he may not even know what SaaS is. As a result, many people have produced a simple methodology, what have not been heard, and what sounds like the highest end, I will vote. Although there is a certain reason for this, the probability of betting on the treasure is a bit too low.

If we don’t have the ability to analyze the choice of the track independently, let’s take a look at what the giants in the market are playing. When the giant chooses the industry track, it is largely to improve its upstream and downstream ecosystem, and this is definitely based on its long-term strategic considerations, so these upstream and downstream industries are likely to become the future golden track. . In addition, unicorns often have the characteristics of explosive growth, and this is often accompanied by the emergence of new trends in market trends, such as the familiar chattering fast, all benefit from the prosperity of the short video industry.

How do players choose? After the analysis of the track segmentation and the fundamental disassembly, there are actually not many head companies left, so how do you determine which one you want to invest in? For example, in the era of shared bicycles, you voted foro or Moby. When the remaining players do not have a very large degree of discrimination, investors will actually pay more attention to the ability and business thinking of the company’s senior team.

The well-known elevator law in the investment field can provide a reference for investors’ judgment at this time. Because the real potential of the super unicorn is to have a clear understanding of its business model and development strategy. planning.

In a short period of time, this company’s unicorn gene can be reflected. Why did you choose this track?What is the future direction of the industry? What are the advantages and disadvantages of the management team and the core competitiveness? After clarifying these issues, if the entrepreneurs and investors form a tacit understanding of the same problem, the interaction between the two will be more conscience. In the later stage, the more likely it is to become a super unicorn under capital blessing.

The ceiling and moat of the unicorn company

We mentioned the difference between the logic of investors and entrepreneurs. From the perspective of investors, the business model of the unicorn is perfect, and ultimately it will return to my exit income. What affects the exit revenue is the ceiling and moat of the unicorn enterprise. One decides how much return you can get, and one decides whether you can get the expected return. Both are indispensable.

However, the unicorns on the market now seem to have no ceilings, and the logic of “as long as I burn enough money, my ceiling is higher” is not a minority. There are fewer unicorns with moats, and the unicorn’s risk control is like playing around (see article “[Unicorn 3] Wind Control Logic for Unicorn Enterprises”). A good unicorn must have both a high ceiling and a deep enough moat, both of which are indispensable.

The ceiling of the unicorn is largely influenced by the path of corporate expansion, and there are multiple modes of expansion. The calculation of the ceiling requires a reasonable deduction of the path of the enterprise in each mode. . For example, if my investment logic is to lock a unicorn that can open up potential markets in a particular area by upgrading technical barriers, then I need to figure out how to develop 50% of the market. 80% of the development, fully developed investment income, it is likely that you will find that this will bring amazing cash flow, but the bigger one may be his ceiling.

At this point, companies can expand vertically, continue to upgrade the technology update market can also develop horizontally, develop a derivative market with this product, and then the ceiling of the unicorn will rise to what height? But in fact, the expansion logic mentioned above is not one after the other, more is a two-pronged approach. So when we judge the investment value of the unicorn enterprise, the height of the ceiling is one side, and the breadth is another.

For example, the expansion path of Didi will start from the profit of each car in the network. We can use the ratio of the domestic taxi market to draw the main business ceiling, and the drip in the network. In addition to the new business of 2B, there will be new ways of value accounting, such as possible distillate logistics, and the market surplus will be given to the share of the development available for the drop by the unit fee.Rate, and then add the ceiling of each field is the ceiling of the drop.

As the business continues to expand, the ceiling of Didi will continue to rise. Finally, comparing this possible value with its market valuation, it can be seen that the future earnings of investing in the unicorn at this moment are How big.

At the same time, if the depth of the moat is not enough, it is normal for the ceiling to collapse. Drips such a super-unicorn with a valuation of 50 billion has been defeated in the field of windmills, not to mention some small companies that are facing fierce competition.

The depth of the moat is reflected in the fundamentals of the company, and compliance is about its width. Fundamentals are mainly influenced by cash flow and core technology. Especially for unicorn companies, capital brings cash flow, and cash flow will attract more capital. If liquidity is not enough, it is difficult to compete. Survive. With sufficient cash flow and no strong technology to withstand external challenges, it will only be a capital struggle. The unicorn is only irreplaceable enough to have a steady stream of cash, so the two are complementary. relationship.

In addition to data fraud, commercial fraud is a “stimulus battlefield” for unicorns. The singular American blood test unicorn Theranos once boiled Silicon Valley because its technical barriers were too strong, and its products claimed to be able to detect at very low cost. Hundreds of blood health indicators.

After the fraudulent scandal broke out, even if there were investors coming to the platform, it was still difficult to resist the downturn, and the business dream was instantly shattered. This advanced technology has attracted a large amount of capital inflows, and has been funded by individuals and institutions such as Oracle founder Larry Ellison and venture capital Defengjie. The Theranos has been rated as more than 9 billion US dollars. Tesla’s “World Change Startup Company”.

All of this is built on the technical barriers of Theranos, but Theranos has deceived most investors by technology and test results for a long time. The high-tech market is always looking forward to Aladdin’s lamp, bringing a technological breakthrough in Genesis, which provides an opportunity for technical fraud. Of course, it is also possible that Theranos is not deliberately falsified, but is forced to continue to transfuse blood to support the high cost of research and development.

Unicorn’s investment cycle, IPO is not the only option

2019 Many super unicorns appear on the waiting list, including UBER, Airbnb, WeWork, which are familiar to the public, and this makes the 2019IPO financing amount available.Hope more than 100 billion US dollars.

Many investors are on the verge of these upcoming unicorns, which makes the unicorn investment market in the Pre-IPO sector extremely hot. Recently, a well-known “unicorn” company opened its IPO. In a round of financing, more than 100 investment institutions want to participate in investment. Another company originally had a valuation of about $90 billion, and investors flocked to the market to push its valuation to $150 billion in a short period of time. This also makes investors fall into the trap of “others are investing, I will lose if I don’t invest.”

Is IPO really so profitable? In fact, it may not be. Even if we don’t discuss the break, the profit from IPO may not be as high as the market imagined. A basic logic is that if you can get a share of a company’s IPO placement, then this will be a potentially high return investment, but the first day performance and late trend of the listing will be very It depends a lot on the target you choose.

When we discuss the IPO market boom and economic situation at a particular point in time, we often use the term average return rate, but the average brings unfairness, and the IPO winner losers are averaged. It seems that they have made a lot of money, but according to relevant statistics, 60% of IPO investment returns after five years of IPO are negative.

So why are investors so keen to invest in the unicorns of the Pre-IPO stage, because the investor’s strategy is not long-term holdings, but by speculating on the unicorn theme, raising the IPO price to achieve one or two Rapid arbitrage in the marketplace. This set of logic is not a big problem. The problem is that there are too many people who want to do this, so that the valuation of the Unicorn in the Pre-IPO round of financing has seriously deviated from its actual value. At this time, if the secondary market thinks that this virtual price is not convincing, it will not buy it. This is the main reason why Lyft, UBER, these super unicorns are listed on the market this year.

At the same time, investors in the Pre-IPO stage want their unicorns to be listed as soon as possible, even if they may not have listing conditions, which indirectly promotes the prosperity of the IPO market. If the arbitrage target is not achieved during the IPO phase and the investors continue to hold the investment, they will find that the market corrected price may be lower than the price at the entry stage, because the price at the time of entry has been overestimated.

In fact, the investment path of the unicorn is far more than the only option of IPO. M&A exit is also an investment strategy. Investors are eager to realize rapid asset realization, while IPO’s uncertainty is difficult to ensure that investors can really make money to withdraw, and now the Pre-IPO round of the unicorn investment market is obviously a bit overheated.

When the IPO rhythm is difficult to control, the risk of exiting through mergers and acquisitions will be much smaller. Just like the Mobai of the year, it was only after the inclusion of the US group that it supported the winter of the shared bicycle industry. And does the merger not make money? Of course not, and the exit of mergers and acquisitions has become the main choice for many capital withdrawals.

Especially in the field of biotechnology, because the IPO has a long period of realization, the company has a long development period, and the research costs need to be continuously replenished, so these unicorn investors are more inclined to obtain assets through mergers and acquisitions. According to relevant data, 18 companies have exited through mergers and acquisitions since 2009, with a total valuation of more than 47.5 billion US dollars, far exceeding the $16.9 billion that IPOs withdrew during the same period.

For investors and entrepreneurs, business thinking and long-term strategic layout are always the most important, and only the logically matched entrepreneurial investor portfolio will jointly create the next unicorn, capture one Only a super unicorn has never been an easy task. What we can do is to try to falsify the truth, based on the analysis and dismantling of the market and business models, to find the choice of probability maximization.