[gphil]

> There are about 144 unicorns right now. If only 10% break out, that's only 14 companies that will really make it.

Doesn't this ratio seem about right for any basket of unprofitable (or even zero-revenue) high-growth companies regardless of valuation? If those 14 winner companies average greater than a 10x return then everything pans out as expected--lots of risky investments together produce a reliable if more modest return on investment.

It seems like the only abnormal aspect is the size of the valuations, but that might be just what happens in a low interest rate environment--too much money chasing too few deals. Whether this affects this success rate of these investments remains to be seen I guess.

[rhino369]

You have to make a killing on that 10% if you are going to make up all the losses on the 90%. That works for early state investing, but I can't imagine that works for late stage.

But the real problem with bubbles isn't that loser companies are pumped up, but real profitable companies are way overvalued too. During the dotcom crash Microsoft lost half its value. It was a winner. It had massive profit margins the whole time.

So Uber may be in the 10% success. But if you invest right now, it might be worth half as much in 5 years.

[Naritai]

Your assumption of 10% breakout is based, on some level, an assumption that each company's valuation is uncorrelated with the others, and each company will rise and fall on its merits. However, the nature of bubbles is that valuations become based on underlying structural reasons - this is what happened during the housing bubble as well. Statistical generalizations such as 'even if up to x% of people default on their loans, we'll still make money' were used to justify unreasonable investments in homes, which in turn drove a real estate valuation bubble.

Well, here's what we learned in 2008 - in a down market, it's possible for _way_ more than x% of people to default all at the same time.

[gphil]

Yeah, I wouldn't rule out the possibility of structural problems--we've never seen this phenomenon before so it's hard to say how it will turn out.

I was just trying to point out that it's not impossible for the current crop of unicorns to produce big enough winners to outweigh the failure of the rest.

I'm definitely skeptical that this will happen though, because the winners would have to be really big (hundreds of billions in actual market cap in the public markets) in order to make up for the really big failures.