16 Feb Whither the Unicorns When IPOs are Tough?

A Greek historian first wrote of them in the 5th Century BC. Marco Polo thought he saw some (but they were rhinos). Genghis Khan turned his army back from a planned invasion of India because one apparently bowed to him, which he thought was a sign. Since 1971 a Michigan university has issued hunting permits for them. But mostly what we know about unicorns, is they don’t exist.

But as with all things Wall Street, pshaw to that! The term has recently been applied to something that, yes, previously, was pretty unheard of. Early-ish stage privately held companies worth more than $1 billion. Which ones you say? Well these days it’s companies like Uber, Airbnb, Snapchat, SpaceX, Pinterest, get it? The problem in the current market, according to Law360, is that the unicorns’ surging private values are, um, locking horns with a struggling IPO market.

So late stage investors are protecting themselves more. For example, they are more actively using blocking rights, that take away automatic conversion of preferred stock into common upon the IPO if the price is too low. This generally leads to a negotiation and issuance of more shares to the venture guys to let the lower priced IPO go forward. They are obtaining similar protections against a low acquisition price as well. Or…self-filing like Coronado Biosciences? Reverse merger into a smaller operating company like Burger King and KKR? Just saying.