Startup bubble: It's real, but does it exist in tech?

"As more Fortune 500 CEOs recognize and admit their vulnerability to disruption, expect them to hedge their own public valuations by buying the very same unicorns that keep them awake at night… Welcome to the Unicorn Hedge." - Dave McClure

Reams have been written down about the startup bubble, but we are yet to see the outcome. There have been high-profile discussions about bizarre valuations, slowing funds, advent of cockroach startups, massive lay offs and more.

Amidst all the negativity in the startup space, there seems to be some hope, at least Dave McClure thinks so. His report points out that the bubble may exist, but not in tech. On the contrary, it's the bigger, public listed companies and their head honchos that should be worried as tech startups have begun emulating similar and maybe better models.

"The REAL twist won’t be tech founders or investors losing all their money on over-valued unicorns (though indeed, that will happen too) — the REAL twist will be watching a bunch of senile, senior-citizen Fortune 500 CEOs & out-of-touch Gordon Gekko private equity “Barbarians at the Gate” get beat like a drum by tech startups and VCs half their age and twice as greedy," the report adds.

https://twitter.com/mikeguimarin/status/767550168568700930

Interestingly, he has added more jargon to the long list of words that we have been finding ever so hard to grapple with. After unicorns and cockroaches, it's time for Unicorn Hedge. In his own words, "As more Fortune 500 CEOs recognize and admit their vulnerability to disruption, expect them to hedge their own public valuations by buying the very same unicorns that keep them awake at night… Welcome to the Unicorn Hedge."

https://twitter.com/martinsfp/status/767449473446473728

Unicorn Hedge is hedging the public company stock by buying unicorns for about 5-10 percent of the market cap. He calls it the simplest way to 'defuse' a startup that is a potential threat. "Innovation isn’t coming from NASA or Detroit anymore, it’s coming from Tesla and SpaceX, from Stanford and Berkeley, from 500 Startups and Y Combinator, a garage in Bucharest or Bangkok or Bangalore, or a startup accelerator in Mexico City, Istanbul or Lagos," he adds.

There is no denying that bigger companies have started acquiring startups to add to the muscle and yes, also the ones they find to be a potential threat. For instance, Microsoft acquired LinkedIn, Google bought YouTube and Facebook bought WhatsApp and Instagram, among others. However, this may be true in some cases, but startups knocking off Fortune 500 companies and their CEOs seems too far fetched to be believed entirely. Moreover, there is also no denying that the funding has slowed down and investors have begun to worry about returns. In India, we've seen the food tech space fall flat on its face, while several others, including biggies like Flipkart have started showing signs of struggle.

However, we understand that not every unicorn is overvalued, and some are on the right track. Talking about some of these lucky ones, the report adds, "This is the reason private equity and mutual funds are scrambling to figure out how to get into tech startups earlier & earlier, rather than waiting until they go public later & later, long after they’re worth billions. They don’t want to miss out on the value created before those companies IPO, or even before they get to unicorn valuations of $1B+."

He believes this will be a global phenomena and not just remain in the Silicon Valley.

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