Adyen CEO Pieter van der Does on unicorns, funding and tech valuations - Business Insider

Flickr/The Public Domain ReviewAdyen's CEO is dismissive of "unicorns."

The CEO of a $2.3 billion (£1.6 billion) Dutch payments business says the craze for so-called unicorn valuations of $1 billion or more in the tech sector has "driven irresponsible behaviour of founders."

The term "unicorn" was coined to refer to the rare startups that would one day be worth over $1 billion.

Venture capitalists look for these when investing: If seven out of 10 businesses they backed were to fail, as the stats predict, the one unicorn would make up for those failures and make sure the VC fund came out on top.

While by definition they're meant to be rare, the idea of unicorns captured the imagination of entrepreneurs and investors in 2015, with a huge number of new unicorns being "born."

Startups that joined the unicorn club last year include TransferWise, Lyft, Zenefits, SoFi, HelloFresh, Prosper, Oscar, and Farfetch, according to the venture-capital-data tracker CB Insights. There were many more.

'It is a purpose in itself'

But Adyen CEO Pieter van der Does, who works with the likes of Spotify, Netflix, and Uber, told Business Insider at the Money2020 Europe conference in Copenhagen last week: "If you take the whole unicorn list and say, 'Now you have to do funding on common stock, no preference,' then about half of them, and definitely the $1 billion ones, would be gone. The unicorn list would be at least halved."

VCs and other investors usually get "preferred stock" rather than the "common stock" given to employees and public investors. "Common stock," as you'd expect, has no bells and whistles. But "preferred stock" gives investors special rights, such as regular dividends or the right to be first in line to get their money back if a company is liquidated. The exact terms aren't generally disclosed.

This makes investors more willing to accept higher valuations; in most cases the terms mean there isn't actually much risk to their principal. In some cases liquidation preferences will in fact be multiples of the initial investment, so investors are likely to make

via uk.businessinsider.com