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Fortune Magazine and Bloomberg recently featured new research by Assistant Professor Will Gornall and Ilya Strebulaev of Stanford University. Their study found that about half of unicorns – the infamous start-ups valued at more than $1 billion – do not deserve their mythical title.

“The study looked at 116 unicorns founded after 1994, with average valuations of $2.7 billion. Researchers found that 11 percent of companies, including HomeAway and SolarCity, used preferential stock to boost their valuations to more than twice what they would be worth using the study’s fair value estimates,” writes Julie Verhage of Bloomberg. “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.” 

Verhage quoted Gornall and Strebulaev’s conclusion directly: “Our results suggest that more attention should be paid to the contractual terms between investors and companies.”

The article will also be featured in Fortune Magazine’s Sept. 8 print edition.

Will Gornall is an Assistant Professor of Finance at the UBC Sauder School of Business.

Image credit: Lemon~art