BBLJ

The Startup Bubble Deflation: A Story of Disproportionate Valuations

By Grace Tepley, J.D. Candidate 2022 | Posted on

The recent deflation of the startup bubble may be explained by Wall Street investors’ growing reluctance to buy into huge startup valuations. Recent IPO debut flops of hot companies with high valuations (Uber, Lyft and Peloton) have other companies like WeWork rethinking going public anytime soon. Peloton alone managed to lose $900 million of private investor wealth after their recent IPO. Similarly, with a price of $45 per share, Uber reached a valuation of $82.4 billion in their IPO, substantially less than its most recent $120 billion private valuation.

The reason these highly valued companies are struggling on the public market has to do with a new trend in venture capital (VC) investment. VC firms are increasingly flooding young startups with seemingly endless capital. Speculations as to which companies have the highest growth potential has resulted in VC firms dolling out enough money to keep young startups afloat. This holds true for startups lacking fundamentals such as the ability to turn a profit, maintain experienced leadership, and establish well-developed business plans.

Young companies that receive billion dollar valuations – once deemed “unicorns” for their rarity –  are the new norm in the startup community. VCs betting on future growth and market dominance rather than current and sustainable profitability has resulted in the overvalued bubble seen today. In fact, these practices have resulted in 49% of VC-backed unicorns boasting valuations far above their market value.

Public investors are increasingly becoming skeptical of these huge valuations because, despite creating massive revenue, some companies, like Uber, fail to make a profit. Overall, less than one fourth of all recent IPOs are from profitable companies. The IPO flops of Uber, Lyft and Peloton suggest that public investors may be shifting back to preferring tangible profitability as opposed to the path to profitability narrative that is being sold today.

However, there are notable exceptions to this flop phenomena that indicate public investors are still interested in interacting with unicorn-status companies that have their fundamentals in place. For example, Pinterest and Chewy sufficiently impressed public investors to survive their IPOs without losses. Likewise, Airbnb’s recent acquisition of talented leaders marks a clear investment in its business model that may welcome public investors.

It is likely that the recent deflation in the startup bubble is the market’s way of correcting itself from disproportionate valuations. Whether or not highly valued companies will continue to seek public investments may now depend on the reliability of their future profits. What is clear is that the discussion of overvaluation is increasingly important to both public and private investors, as well as the startups intending to raise capital from these sources.

The Startup Bubble Deflation- A Story of Disproportionate Valuations

Vox Media Acquires New York Magazine

By Gayatri Raghunandan | Posted on

Vox Media announced its acquisition of New York magazine along with its digital assets in an all-stock transaction in September 2019. A press release by New York Magazine revealed that Jim Bankoff, Vox Media CEO and chairman, will continue to lead all aspects of Vox Media. Pamela Wasserstein, chief executive of New York Media, will serve as president and have a seat on the company’s board of directors. According to Bankoff and Wasserstein, the deal is a logical step, which will not diminish the brands of either company.

New York Magazine, which was first published nearly fifty-one years ago, laid off at least five percent of its staff this year and has recorded a $10 million loss each year. Earlier in the year, the magazine also witnessed its editor-in-chief, Adam Moss, stepping down after fifteen years in the position. However, amidst such changes, Jim Bankoff has recorded that there would be no personnel changes within any of the magazine’s related publications or even within any of the Vox media brands, which include The Verge, Eater, Curbed, Vox and SB Nation. This statement has been surprisingly reassuring following the large-scale restructuring of New York Magazine, which laid off sixteen full-time staffers and sixteen freelancers or part-time employees.

Many experts say that this is a merger driven by shared ambition and that Vox’s growth trajectory and success in developing premium editorial brands is a driving force of this acquisition. The combination looks to diversify various forms of media and is supported by the nature of Vox Media, which was reshaped by Jim Bankoff. At present, Vox’s model relies less on digital advertising, yet boasts of a sizable profit on a revenue of $185 million, as reported last year. The company also recently negotiated a production deal with streaming service Hulu to create a series of TV shows. The deal was followed by another production agreement with Netflix. Vox’s revenue has been further enhanced by licensing its content management system, Chorus. Keeping in mind Vox’s recent successes, the rationale behind this merger has been firmly stated by Bankoff, who calls this combination in the digital media industry, most unique and different from all those mergers in the industry which have emerged out of desperation or for pure financial engineering.

Following the consummation of this transaction, Vox Media is expected to remain profitable and perhaps even increase its revenue by $300 million by the end of 2020. Vox Media has already raised more than $300 million, which includes $200 million from NBCUniversal. Further, according to the estimations of both Bankoff and Wasserstein, the combined sites would have at least 125 million unique monthly visitors. While the value of this transaction remains undisclosed, it is expected to close later this year.

Vox Media Acquires New York Magazine

Recap: “The Scott Carey Speaker Series — The Global Chairman”

By Patrick Atchison, J.D. Candidate 2018 | Posted on

On March 30, 2015 the California Law Review, Berkeley Center for Law & Technology, and Berkeley Business Law Journal welcomed Mitchell Zuklie ‘96, the global Chairman and Chief Executive Officer of Orrick, Herrington & Sutcliffe LLP (Orrick) for a Q&A discussion about his career as one of the country’s leading technology attorneys and his current role managing a major global law firm.

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Recap: “The Scott Carey Speaker Series—The Real Estate Lawyer”

By Patrick Atchison, J.D. Candidate 2018 | Posted on

On October 29, 2015, the Berkeley Business Law Journal and the UC Berkeley Department of City & Regional Planning welcomed Leo Pircher ’57, a founding partner at Pircher, Nichols & Meeks, for a Q&A discussion about his career as an industry leading real estate attorney and changing dynamics in real estate law.

A graduate of UC Berkeley ‘54 and UC Berkeley School of Law ‘57, Mr. Pircher began his legal career working in a variety of practice areas including tort litigation, wills & estates, and tax.  After several years of firm work, Mr. Pircher joined J&B Reedly Corporation, which at the time was the largest private equity real estate company in the nation. As corporate counsel, Pircher innovated real-estate tax structures and legal techniques for real estate transactions that remain industry standards to this day.

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