Unicorns, Sphinxes and Bitcoin for Stocks

Matt Levine is a Bloomberg View columnist. He was an editor of Dealbreaker, an investment banker at Goldman Sachs, a mergers and acquisitions lawyer at Wachtell, Lipton, Rosen & Katz and a clerk for the U.S. Court of Appeals for the Third Circuit.
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On-demand fundraising.

I don't know if we're in a tech bubble, but I have to say that if we are and it pops, we're all going to be pretty embarrassed that we were walking around talking about "unicorns." I gather that once upon a time the idea of calling a super awesome private company a "unicorn" was that such a company was a rare and beautiful thing that needed to be delicately coaxed out of hiding. Now they're everywhere, and there's been some weird etymological transference where now "uni" means "one" and "corn" means "billion dollar valuation," which is why people talk about "decacorns," just a hideous coinage really, what would you want with a ten-horned horse? 

Anyway Uber is apparently going to be a quinquagintacorn, or maybe you just call it an ubercorn, I don't know, but it's "in early talks to raise a new round of financing that could value the start-up at $50 billion," targeting about $1.5 billion for strategic purposes. (It could use the money to buy a sesquicorn.) You might remember Uber from such previous hits as raising "a total of more than $2 billion from investors in June and December last year." And Uber is not alone in frequent speedy enormous private fundraising; other unicorns have also had an easy time of it:

Entrepreneurs are often happy to take up eager investors on their offers. Stewart Butterfield, chief executive of Slack, recently said that his start-up had more than enough money in the bank — just before collecting $160 million more.

“This is the best time to raise money ever,” he said last month. “It might be the best time for any kind of business, in any industry, to raise money for all of history, like since the time of the ancient Egyptians.”

Honestly it would be odd if the ancient Egyptians had a larger venture capital industry than modern Silicon Valley. ("I just invested 20 million shekels in a new on-demand irrigation startup at a billion-shekel valuation." "Oh we call that a 'sphinx.'") The comparison that springs more readily to mind is the late-90s tech bubble, when it was really easy for dumb tech companies to raise a lot of money in public markets. Pets.com is the notorious poster child/sock puppet for that bubble, and it raised $82 million in its initial public offering, just a wee fraction of what Uber gets every time it so much as glances at the private fundraising markets.

You could have a model here where public markets are diverse and transparent (short-sellers short, value investors stay away from overpriced companies, analysts criticize disappointing earnings), while venture capital is a clubby business driven to groupthink by its specialization (if your job is investing in tech startups, you'd better keep investing in tech startups!) and a desire not to miss out on the deals that everyone else is doing. This model strikes me as overstated -- part of why private valuations are so high is that a lot of the money is coming from erstwhile public-company investors rather than traditional venture capitalists -- but nonetheless useful.

Bitcoins backed by private companies.

We've talked a bit recently about whether it makes sense to have a virtual currency backed by some asset other than itself, or, in other words, to use the blockchain technology to transfer ownership of something other than bitcoins. I am still a bit confused myself, but many people think that the most promising application of the blockchain is exactly that: to encode the transfer of financial assets in a more secure and decentralized and faster way than the present system. Since the present system is pretty meh:

Private companies typically handle sales and transfers of shares with largely informal systems, including spreadsheets maintained by lawyers who verify transactions by hand. Nasdaq wants to replace that process with a system based on bitcoin’s blockchain technology.

Nasdaq is starting small with "Nasdaq Private Market, a fledgling marketplace launched in January 2014 to handle pre-IPO trading among private companies," and it makes sense that the tech enthusiasts who want to trade private companies would overlap with the bitcoin enthusiasts who want to do it using the blockchain. This idea -- smart contracts, transfer of external assets using the blockchain -- was part of the original idea of bitcoin, and seems promising. What I continue to struggle with is how separable it is from bitcoin as a currency. To have a blockchain you need mining, and to have mining you need to reward mining, and to reward mining you give miners bitcoins, and so to move share certificates around you're also probably moving bitcoins:

One idea is that encrypted, digital representations of share certificates could be inserted into minute bitcoin transactions known as “Satoshis,” facilitating an immediate, verifiable transfer of stock ownership from seller to buyer.

This election will be fun.

"Senior executives from seven of the biggest U.S. banks gathered or dialed into a March 31 meeting on the 51st floor of the Bank of America Tower in New York to discuss the upcoming election cycle and how the firms can counteract what they view as false and damaging statements about large banks," because I guess that is a good PR move? If there's one thing people love more than big banks, it's big banks conspiring together to influence elections. I mean, sorry, they're not conspiring to influence the election, they're conspiring to avoid having the election be about them:

The lunchtime gathering in March, organized by John Rogers, an executive vice president at Goldman Sachs Group Inc., and James Mahoney, Bank of America Corp.’s head of corporate communications and public policy, focused on what various candidates have said on the campaign trail, which statements were troubling and how in the course of their regular communications and outreach work bank officials could set the record straight, according to one participant.

Elsewhere in banks and politics, I was mildly critical of Douglas Holtz-Eakin's claim that Dodd-Frank will reduce U.S. gross domestic product by $895 billion over ten years by raising bank capital requirements, but here is Mike Konczal destroying it. And Anthony Scaramucci wants lower taxes because humans are now immortal:

John Keynes, you see, was actually wrong. His famous utterance, “In the long run, we are all dead,” isn’t true. Like it or not, the long run is upon us, and we are all very much alive (aside from Keynes).

Repo and the City.

Here's a story about how non-U.K. banks are shifting their repo trading outside of London in order to avoid the increased tax on U.K. balance sheets, which is now 0.21 percent. "Some bankers point out that in a low interest-rate environment, and amid tougher regulation, many repo and trading transactions can in any case become only marginally economic, prompting overall shrinkage on a global basis," but if they're only marginally economic anyway an extra 21 basis points of tax really matters. There is the usual complaining that "the levy is short-sighted and will lead to valuable business — and tax revenue — moving overseas," but on the other hand the government might be okay with that: The events of the past few years "have all made UK policy makers wary of outsized operations being based in the City." You could imagine a U.K. policy maker saying, look, if marginally economic financial activities that require huge balance sheets move elsewhere, that's just fine. For all the anti-bank rhetoric in the U.S., that particular thought process is harder to find here; our debate is more like "this thing will make U.S. banks less competitive globally," "no it won't," "yes it will," etc.

Things happen.

U.S. companies' unrepatriated overseas cash totals $1.73 trillion, with $439 billion of that at just Apple, Microsoft, Google, Pfizer and Cisco. Don't go to FX trading school. TPG is buying Cushman & Wakefield. Merkel Pressed to Give Up Greece as Germans Urge Strong Euro, and Schaeuble Says Greece Playing Chicken With Default Risk, and I.M.F. and Central Bank Loom Large Over Greece’s Debt TalksSteven Davidoff Solomon and Ronald Barusch on Mylan's defense against Teva. Some claims about reps and warranty insurance that I find implausible. Hedge funds and cyber security. Kathryn Schulz on Nell Zink. "You could live in the Upper East Side of Manhattan or Kensington or Sunset Park." Poker bot. The $21 Long Island Iced Tea. "Wild-eyed, gold-rush, Klondike speculation, that’s what wins the Stock Market Game."

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This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Matt Levine at mlevine51@bloomberg.net

To contact the editor on this story:
Zara Kessler at zkessler@bloomberg.net