Berkeley Center for Law Business and the Economy

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: “BCLB Law Firm Hot Topic Lunch Talk: Kirkland & Ellis LLP – The Hunstman Merger”

By Michael Homer, J.D. Candidate 2020 | Posted on

On February 12th, 2018, the Berkeley Center for Law and Business welcomed attorneys Bill Sorabella and Shawn O’Hargan from Kirkland & Ellis LLP. Kirkland & Ellis LLP advised American chemical manufacturer Huntsman Corporation on its $20 billion merger with Swiss chemical company Clariant. Then, in the final stages of negotiations, there was an unexpected twist, as activist investors abruptly blocked the merger. Sorabella and O’Hargan led the team that crafted the deal, before that deal suddenly fell through.

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Recap: “Leadership Lunch Talk: Ricardo Cortes-Monroy, Nestlé – Sustenance and Sustainability”

By Hayley Dardick, J.D. Candidate 2019 | Posted on

On October 24th, 2017, the Berkeley Center for Law, Business and the Economy (BCLBE) hosted Ricardo Cortes-Monroy, Chief Legal Officer and General Counsel of Nestlé.

Nestlé is the world’s largest food company, manufacturing more than 10,000 different products, employing around 330,000 people, and maintaining a presence in over 150 countries. Mr. Cortes-Monroy not only manages the company’s giant legal department, but is recognized as a leader in the legal community for advancing corporate citizenship.

He explained that sustainability and corporate responsibility should be understood as legal issues, and urged this needs to be embraced by other inside counsel. In the past, these concepts were only acknowledged as public relations concerns—indeed many lawyers today view corporate responsibility as nothing more than a marketing fad. Mr. Cortes-Monroy, however, explains these concepts are relevant business considerations. In the food industry, you must maintain trust and a positive reputation to be successful with consumers. But for Mr. Cortes-Monroy, the bottom line is, “It’s not about what is legal, but what is right.”

The paramount example of Mr. Cortes-Monroy’s commitment to this ideal is the Thai fisheries case. In 2014, media outlets and NGOs began reporting on ties between horrific labor conditions on fishing boats in Thailand and Purina cat food, a brand owned by Nestlé. In response to these reports, Nestlé’s legal department commissioned global NGO Verité  to investigate its production sites in Thailand. Using supply chain mapping, Verité confirmed a link. In an incredibly dangerous move and despite significant legal risks, Nestlé published the report online, basically admitting wrongdoing. Mr. Cortes-Monroy recognizes, “from a defense lawyer perspective, what we did was crazy.”

Yet, the company was publically praised for disclosing the report and announcing an action plan to combat slave labor in its supply chain. Measures outlined in the plan include commissioning an emergency response team, launching an awareness campaign, training boat owners and captains, and utilizing a traceability system and audits. Nestlé’s disclosure ultimately shielded the company from liability under the safe harbor doctrine in one California class action.

Nestlé’s commitment to corporate responsibility may be having an influence on other companies, as well. Pulling straight from the Nestlé playbook, Patagonia engaged Verité to investigate forced labor in their clothing supply chain and to assist the company with a strategy moving forward.

Nestlé continues to strive for improvement in sustainability. For example, the company has committed to purchase only cage-free eggs by 2020. As Mr. Cortes-Monroy concluded, “Challenges are still there, but there has been remarkable progress in the last few years.”

The presentation also discussed Nestlé’s Summer Internship Program for 1L students. Second year Berkeley Law student Lauren Kelly-Jones was on-hand to share her experience interning in Nestlé’s Legal Sustainability & Creating Shared Value group this past summer in Vevey, Switzerland. Interested first year students may apply for next summer’s program when the application becomes available on December 1st.

Recap Leadership Lunch Talk Ricardo Cortes-Monroy, Nestlé – Sustenance and Sustainability (PDF)

Recap: Dom Perella, Snap Inc.

By Olivia Poppens, J.D. Candidate 2019 | Posted on

On January 18th, the Berkeley Center for Law, Business and the Economy (BCLBE) held a speaker series entitled, “A conversation with Dom Perella, Deputy General Counsel and Chief Compliance Officer of Snap, Inc.” Perella spoke to Berkeley Law students and faculty on his position at one of the world’s most popular startups, as well as his time at the Supreme Court and Appellate Litigation practice at Hogan Lovells.

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Event Recap: Berkeley Sustainable Business & Investment Forum (Part I)

By Jenna Alia, J.D. Candidate 2017 | Posted on

On November 10 & 11, 2015 the University of California, Berkeley School of Law and Berkeley Haas School of Business jointly hosted the inaugural Berkeley Sustainable Business & Investment Forum at the University Club on campus. Key players from across all industries and academia attended the two-day event to share perspectives and insight on evolving topics of risk management, capital investment, and sustainable business practices with a focus on long term growth and value creation for all stakeholders.

The event was co-sponsored by PepsiCo, Visa, and PriceWaterhouseCoopers (“PwC”). The forum focused on the advancement of risk management, capital allocation, and sustainable business practices, with an emphasis on long-term value-creation

This is part one of a three-part series dedicated to coverage of the event.

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Event Recap: Berkeley Sustainable Business & Investment Forum (Part II)

By Kevin Chiu, J.D. Candidate 2018 | Posted on

On November 10 & 11, 2015 the University of California, Berkeley School of Law and Berkeley Haas School of Business jointly hosted the inaugural Berkeley Sustainable Business & Investment Forum at the University Club on campus. Key players from across all industries and academia attended the two-day event to share perspectives and insight on evolving topics of risk management, capital investment, and sustainable business practices with a focus on long term growth and value creation for all stakeholders.

The event was co-sponsored by PepsiCo, Visa, and PriceWaterhouseCoopers (“PwC”). The forum focused on the advancement of risk management, capital allocation, and sustainable business practices, with an emphasis on long-term value-creation

This is part two of a three-part series dedicated to coverage of the event.

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Event Recap: Berkeley Sustainable Business & Investment Forum (Part III)

By Kevin Chiu, J.D. Candidate 2018 | Posted on

On November 10 & 11, 2015 the University of California, Berkeley School of Law and Berkeley Haas School of Business jointly hosted the inaugural Berkeley Sustainable Business & Investment Forum at the University Club on campus. Key players from across all industries and academia attended the two-day event to share perspectives and insight on evolving topics of risk management, capital investment, and sustainable business practices with a focus on long term growth and value creation for all stakeholders.

The event was co-sponsored by PepsiCo, Visa, and PriceWaterhouseCoopers (“PwC”). The forum focused on the advancement of risk management, capital allocation, and sustainable business practices, with an emphasis on long-term value-creation

This is part three of a three-part series dedicated to coverage of the event.

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Recap: “Practitioner Speaker Series – Life of a Corporate Finance Attorney: A Conversation with Philip Jonathan Tendler, Partner in Pillsbury’s SF Office”

By Vartika Jain, LL.M. Candidate 2016 | Posted on

On October 22, 2015, the Berkeley Center for Law, Business, and the Economy (BCLBE) welcomed Philip J. Tendler, Partner in Pillsbury’s SF Office, for a Q&A discussion about his career and how law school can arm students with the skillset needed to succeed in the wild world of debt finance.

A former equity securities analyst in the Global Energy and Power Group at Schroders, Mr. Tendler joined Pillsbury after graduating from Boalt in 2000.

Travelling back in time, Mr. Tendler reflected on the things he learned in law school that helped him demystify the concepts and themes of finance in his practice. The conversation was weaved around two anecdotes that he shared from his time at Boalt.

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Recap: “Venture Capital Speaker Series: Stephanie Brecher, General Counsel of New Enterprise Associates”

By Claire Oxford, J.D. Candidate 2018 | Posted on

How does a Berkeley Law graduate end up as the General Counsel of one of Silicon Valley’s top venture capital firms? What does a day in the life of a General Counsel look like and what are the best steps to take to reach a similar prestigious career?

On September 29, Stephanie Brecher, a 1993 U.C. Berkeley Law graduate and General Counsel of New Enterprise Associates (“NEA”), addressed these questions and others to a group of law students in Boalt Hall on the U.C. Berkeley campus.

Ms. Brecher discussed her path from Berkeley Law to NEA. In the start of her career, she described herself as an “accidental tourist” in corporate law. After graduation, Ms. Brecher held a clerkship in the Central District of California. Upon completion of her clerkship, she decided not to take the position she had initially planned on, and instead she accepted a position as an associate at Steptoe & Johnson in Washington, D.C., where she hoped to work in international law, but was placed on the corporate team. After this position she worked as in-house counsel in Silicon Valley and spent nearly a decade at Nortel. Following her time at Nortel, Ms. Brecher returned to work at a law firm and became a partner at Sheppard Mullin Richter & Hampton before she acquired her position at NEA.

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