Unicorn Startup Funding Rounds `Have No Reality,' Diller Says

Does Anyone Actually Believe Tech Valuations?
  • Investors paying `opportunity cost' to get in, he says
  • Money pouring into space because of development in mobile

The valuations of startups known as unicorns, valued at $1 billion or more, “have no reality” because the companies aren’t making money, IAC/InterActiveCorp Chairman Barry Diller said. 

Diller, speaking at the Bloomberg Markets Most Influential Summit, said the numbers are inflated because new investors are pouring money into the space, with the emergence of mobile technology driving fast-paced generation of ideas and inventions. Valuations will fall to a more rational level relatively soon as investment falls away, he said, without specifying a timeline.

“What we have had is an enormous amount of money coming in, continuing money coming in, and no shoes dropping yet of any real size,” Diller said. “When it begins to happen, reality descends -- then, in fact, valuations will become more rational.”

There are 140 startups valued at $1 billion or more, eight of them joining the so-called “unicorn club” in September, according to research firm CB Insights. Most of these startups aren’t profitable, so the valuations don’t matter, Diller said.

“The price only makes sense if you’re saying, ‘I’m over here in this non-digital age and I want to get into this and I’ll pay this huge opportunity cost, and maybe I’ll make something of this,”’ Diller said, citing Walt Disney Co.’s purchase of Maker Studios for $500 million as an example.

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