A view through the conflation

The narrative of overpriced unicorn IPOs and their post-IPO performance is an incomplete and mixed up narrative.

WSJ – A Decade of ‘Unicorns’ Ends With a Little Less Magic / The number of billion-dollar IPOs surges, but their performance lags

Before the IPO, the private market value that is set is typically reflective of a preferred equity structure with top-most ranking in the preference cascade – a waterfall that usually also includes other layers on the way down to where the common stock awaits, in line behind the preferential satisfactions.

It’s not to say that things play out this way in life with unicorns, but theoretically they could, and deals get done the way they do to mitigate the risk that’s taken, before the benefit of hindsight. It is less cavalier than it may be imagined to set a value way up high when there’s an asterisk and footnote in the fine-print.

But there is no financial asterisk or preferential ranking once the IPO is done, when there is also one more critical event that happens for the first time since the unicorn was born… Not the more complete and informational prospectus, although that too, but much more notably: the short positions

To balance out the views and let the market settle undistorted.

Such things considered, the unicorn IPOs are fine and the price adjustments are a healthy milestone on a long, long road ahead. Some of these companies were not around ten years ago or so, and are unlikely to diminish much. Behold the network and its optionality.