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Private Valuations Aren't Grounded in Reality, Study Finds (bloomberg.com)
Unicorns aren't real, and neither are the valuations ascribed to many of the startups that say they're worth $1 billion or more, study finds. From a report: About half of private companies with valuations exceeding $1 billion, known as unicorns, wouldn't have earned the mythical title without the use of complex stock mechanics, according to a study by business professors at the University of British Columbia and Stanford University. The tools used to negotiate a higher share price with investors often come at the expense of employees and early shareholders, sometimes drastically reducing the actual value of their stock. The chasm between public and private valuations is a topic of increasing prominence following several disappointing listings. Among them is Blue Apron Holdings, which is trading well below the price venture capitalists paid in the last fundraising round. An often-overlooked explanation for the divide is buried in investor contracts. Blue Apron, which delivers meal kits to customers, gave stock preferences to Fidelity Investments and other backers in 2015 in exchange for a $2 billion valuation. The shares included a provision to receive additional equity if an initial public offering is set below a target price. Investors took advantage of the mechanism after Blue Apron's mediocre IPO.
Twitter is probably one of the best examples, and at one point was valued more then General Motors.
Twitter is probably the most appalling example of an idea born by accident, took off while the founders squabble over the CEO position, and investors threw cash at it when it had no revenue model for years. Read all about it in "Hatching Twitter: A True Story of Money, Power, Friendship, and Betrayal" by Nick Bilton.