Post #64: A modern fairytale - Heptagon Capital – Production

In what seems like a now long-distant era, the unicorns were many. They were happy. They continued to grow in number and size, even if they became more unstable…

Post #64: A modern fairytale

In what seems like a now long-distant era, the unicorns were many. They were happy. They continued to grow in number and size, even if they became more unstable at the same time. Then the virus came along and the unicorns started to disappear. It was a long time until they began to flourish once again.

There is a serious point to all the above: it takes nothing like a good crisis to test the robustness of unproven business models. Warren Buffett’s famous observation about just how exposed are those “swimming naked” when the tide goes out seems highly apposite. Consider, for example, the plight of scooter-rental companies such as Lime or Bird. What happens to businesses such as these when people are told to stay at home? Then think about the We Company (formerly WeWork), viewed by many as the unicorn poster-child. Was it a tech company, or has it taken the current epidemic to reveal that it was simply a property business, currently with a lot of empty offices? Recently-birthed unicorns on the public markets such as Lyft and Uber have both seen declines of ~50% in their valuations since listing.

From every crisis does, however, spring opportunity. If ever there were a cause for optimism, then consider that while the Great Depression wrecked economic havoc, it also produced some radical new business models. Many of the things we now take for granted – from mass automobile production to cinema-based entertainment and beauty products – emerged in the 1930s. Furthermore, more patents were filed in the US in 1929 than in any other year of the 20th Century. A lot of people are sitting at home with time on their hands certainly have the ability to come up with new ideas…

So what might evolve? This is a question we are spending much time currently considering. Based on what we are seeing, by forcing people to work, shop and amuse themselves from home, the crisis may be highly positive for online companies. Such a dynamic should boost businesses that already sit at the heart of the digital ecosystem (e.g. data centres and cloud services). Many new models will also undoubtedly evolve. The areas of messaging, cybersecurity, payment and entertainment all look ripe for further innovation; healthcare too, although we will save our thoughts on this topic for another post. Watch this space.

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The document is provided for information purposes only and does not constitute investment advice or any recommendation to buy, or sell or otherwise transact in any investments. The document is not intended to be construed as investment research. The contents of this document are based upon sources of information which Heptagon Capital believes to be reliable. However, except to the extent required by applicable law or regulations, no guarantee, warranty or representation (express or implied) is given as to the accuracy or completeness of this document or its contents and, Heptagon Capital, its affiliate companies and its members, officers, employees, agents and advisors do not accept any liability or responsibility in respect of the information or any views expressed herein. Opinions expressed whether in general or in both on the performance of individual investments and in a wider economic context represent the views of the contributor at the time of preparation. Where this document provides forward-looking statements which are based on relevant reports, current opinions, expectations and projections, actual results could differ materially from those anticipated in such statements. All opinions and estimates included in the document are subject to change without notice and Heptagon Capital is under no obligation to update or revise information contained in the document. Furthermore, Heptagon Capital disclaims any liability for any loss, damage, costs or expenses (including direct, indirect, special and consequential) howsoever arising which any person may suffer or incur as a result of viewing or utilising any information included in this document. 

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