This morning’s Observer column:
Some unicorns have astonishing valuations, which are based on the price that new investors are willing to pay for a share. Uber, for example, currently has a valuation in the region of $80bn (£61bn) and there is feverish speculation that when it eventually goes for an initial public offering (IPO) it could be valued at $120bn (£91bn). This for a company that has never made anywhere near a profit and currently loses money at an eye-watering rate. If this reminds you of the dotcom boom of the late 1990s, then join the club.
There is, however, one significant difference. The dotcom boom was based on clueless and irrational exuberance about the commercial potential of the internet, so when it became clear that startups such as Boo.com and Pets.com were never likely to make a profit, the bubble burst as investors tried to get out. But investors in Uber probably don’t care if it never makes a profit, so long as it gets to an IPO that enables them to cash out with a big payoff. If Uber did go public at a valuation of $120bn, for example, the Saudi royal family alone would have a $16bn (£12bn) payday from their investment.
So what’s going on?