Hello from America† where we digest some pretty big news. Given the significance and weight of what’s going on today, it can feel a little weird to sit down and read about billions of dollars of other people’s money. But this is a technology startup and a financial news site. So get to work. Just know that our hearts are where yours are.
Zendesk agreed to sell itself earlier today to a collective of investors for $10.2 billion. An 11-figure sale of a company is remarkable, but in Zendesk’s case, it’s not for the reasons you might initially expect.
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You see, Zendesk turned down a $17 billion bid earlier this year. londonbusinessblog.com somewhat agreed with that choice at the time, given the then relatively low implied revenue multiple. Fast forward a little more than a quarter and, pressured by a falling stock price, Zendesk is going out for much less than it could have accepted earlier in 2022. Our initial analysis was that the news was bad for the more than 1,000 ruminant unicorns in the retail market, waiting for the IPO window to reopen and market valuations for software companies to recover.
But which part of the unicorn horde is actually ready to go public? Not a big one. And of those that aren’t, you know, ready to go public, what part of… That are unicorns really worth their paper price? That’s our homework for today. Follow along for some relaxed Friday-based theory building.
10, 100, 1000
Data from Mary D’Onofrio, Bessemer’s growth-stage investor, indicates that unicorns that have hit $100 million in annual recurring revenue (ARR) are rare. About one in six unicorns has reached the revenue threshold, meaning only 17% of unicorns could defend a $1 billion price tag against a multiple of 10x.
In a way, these are the real unicorns, as they have reached the IPO scale and are still growing. They will be able to go public at some point, probably for $1 billion or more.
But that fact leaves five out of six unicorns in doubt. how much of it? That are worth $1 billion? Not very much. How can we say that with confidence? The following, via Jamin Ball from Altimeter†