You could call them the unicorn vigilantes. And they have a message for the big startups looking to make the move from private investment havens to public markets: Stay away from Wall Street until you get your act together.
Much like the so-called bond vigilantes of the 1980s and ’90s—they started selling when they saw signs of inflation, pushing up interest rates even before the Federal Reserve could act—analysts, fund managers, and other investors are showing signs of increased vigilance about all the new equity being pushed onto the stock market. They’re casting suspicious looks at the unicorns (the nickname used for startups with private valuations of $1 billion or more) that are losing large amounts of money. And at those with convoluted corporate ownership schemes and plans for multiclass share structures that water down the voting power of ordinary investors. And at those that present themselves as tech companies, deserving of Silicon Valley valuations, when in fact their businesses are more mundane. Sometimes the companies’ founders don’t even survive the transition from private to public; Uber’s Travis Kalanick and WeWork’s Adam Neumann were bounced from the top job at their startups amid heightened scrutiny of their management skills.