These slides summarize the recent share price declines for new startups, declines that are driven by huge annual and cumulative losses and it contrasts today's bubble with those of 2000 and 2008. It shows that today's bubble involves bigger startup losses than those of the 2000 bubble and that the markets of new technologies have not grown to the extent that those of past decades did. Many hedge funds, VCs, and pension funds are heavily invested in these startups. Some of them are also highly leveraged.

1. 2000, 2008, 2022: It is hard to avoid the
parallels
How Big Will the 2022 Share Price Decline Be?
JEFFREY FUNK
RETIRED PROFESSOR AND
INDEPENDENT CONSULTANT

2. 2000, 2008, 2022: Many Similarities
 From its peak in March 2000, the Nasdaq fell 60% in a single
year and hundreds of dotcom startups went bankrupt
 The 2008 crash led to bankruptcies for 64,318 firms, including
Lehman Brothers and Merrill Lynch, because of rising sub-
prime mortgage defaults
 The 2022 crash could be worse because it combines the money-
losing startups of the dotcom crash with the over-leveraged
financial firms of 2008

3. Bubble was created by hype about
“New Economy”
Cisco, Qualcomm, Intel, and Nokia
became defined as Internet companies
before seeing share prices fall by
>50%
Hundreds of small startups went
bankrupt
Nasdaq Fell by
60% in One Year

4. 2008 Crash Had
Bigger Decline
Driven by Sub-Prime Mortgages that
were Supposed to Increase Home
Ownership, and thus Wealth for All

5. Current bubble driven by broader and more
sophisticated narrative than in 2000 & 2008
 Current narrative involves technology disrupting almost every sector of
the modern economy
 Technologies range from AI to augmented reality, blockchain and even
science-based technologies such as synthetic biology and nuclear fusion
 They are expected by some to remake sectors ranging from healthcare to
property (proptech) and even regulated sectors (regtech)
 There is even a modern form of the sub-prime mortgage - buy-now-pay
later (BNPL). But share prices for these startups have already dropped
much further and faster than have other startups.

6. Technology Global Market Size in
2020
Video Streaming $70 Billion
Big Data/Algorithms $46 Billion
Tablet Computers $40 Billion
OLED Displays $32 Billion
Smart Homes $20 Billion (only U.S.)
Artificial Intelligence $17 Billion
Virtual Reality $16 Billion
Augmented Reality $11 B (2019)
Commercial Drones $6 B (2018)
Blockchain $1.9 B (2020)
Today’s Technologies Have Not
Achieved Big Markets Sizes
Like Those of Past Decades Did
1990: Personal Computers, $132
Billion
2000: Mobile Phones, E-commerce
($446), Internet Hardware and
Software ($315B), Enterprise
Software ($282B), and Mobile Phone
Services ($230B)
2010: Cloud Computing ($127B),
Online Ads ($81B), Smart Phones
$293B, 2012)
Source: Fast Company, Jeff Funk, Lee Vinsel

7. Also Big Startup Losses and Over Leveraged
Companies
 At end of 3Q 2021, 10 of 133 Unicorn startups had more than $3 billion in
cumulative losses, first achieved by Amazon almost 20 years ago
including Uber ($24.5B) and WeWork ($12.2B)
 Number of publicly traded Unicorns with greater than $1 billion and $500
million in cumulative losses has reached 23 and 59 respectively
 Many big companies invested in startups (e.g., Softbank, Pension funds,
hedge funds), some of whom are over-leveraged
 Above suggests 2022 crash will be bigger than 2000 crash because today’s
losses are much bigger than during dotcom period when funding was
typically less than $100 million.

8. Many Unicorns Have Cumulative Losses
Greater than Annual Revenues
 Amazon briefly had cumulative losses equal to revenues when its
cumulative losses peaked at $3 billion
 There are now 89 ex-Unicorns, among the total of 133, who have
cumulative losses greater than 2020 revenues
 89 of 133 is about 67%, up from 60% before the IPOs of 2021 are added
 This rising percentage partly comes from the many SPACs that had little or
no revenues
 Rising interest rates will increase the cost of servicing the loans for those
losses

9. 0
5
10
15
20
25
Profits -0.1>
< 0
-0.2>
<-0.1
-0.3>
<--0.2
-0.4>
<-0.3
-0.5>
<-0.4
-0.5>
<-1.0
<-1.0
Number of Profitable Startups is Rising Slowly
2019
First
Three
Quarters
2021
2020
Number
of
Startups
Number of Profitable Startups Slightly Higher in 2021

10. Outside the U.S.
 Similar losses exist for startups outside the U.S.
 At least $100 billion in cumulative losses for startups in China, India, and
Singapore
 Video-streaming Kuaishou has largest cumulative losses of any ex-
Unicorn as of mid-2021 with $34.7 billion, about 50% higher than for
Uber.
 Many others have cumulative losses higher than their 2020 revenues

11. When Cumulative Losses Are Larger than
Annual Revenues
 Even if startups magically achieve annual profits equal to 10% of
revenue, it would still take 10 years to erase cumulative losses
 Although Amazon managed to achieve this, few startups will likely
repeat Amazon’s success
 particularly when many of the 89 ex-Unicorns cited above have cumulative losses
much greater than their annual revenues
 Rising interest rates will increase the cost of servicing loans for those
losses, and thus make it harder to erase the cumulative losses

12. How Far Could Unicorn Share Prices Drop?
 Share prices are traditionally based on discounted cash flow of a
company’s expected income
 When a company has had zero profits for many years, probability of
achieving profitability is low and thus any company with appreciable
cumulative losses, for instance ones exceeding annual revenues,
probably has low chance of ever erasing those losses.
 With 67% of today’s Unicorn startups in that situation (up from 60% at
end of 2021), many of them will go bankrupt or be acquired for fire-
sale prices.

13. How Big a “Hole”?
 When we add up cumulative income for the 133 publicly traded
Unicorns, both ones with losses and profits,
 there is a $131 billion “hole” just for American startups, and this hole growing
bigger every quarter.
 The total market capitalization for just the unprofitable American
startups is close to $1 trillion
 This means the entire venture capital and startup sector represents a
gaping financial hole, one that history tells us will have an impact on
that economy

14. Startup Share Prices Are Already Falling, Example of Ark
Innovation’s ETF, Down 40% in Last Three Months

15. Few U.S. Startups Now Among Top 100 Market Capitalization

16. Bigger Concern is Privately Held Unicorns
 There are 1000 globally with total valuation of $3.2 trillion
 Because percentage of startups with cumulative losses > annual revenues
is higher for those going public in 2021 than in previous years,
 privately held Unicorns are probably in worse financial shape than are
publicly traded Unicorns
 Big companies that invested in these startups through corporate venture
capital funds may be forced to write off their investments in both
privately and publicly held startups
 The $3.2 purported value for privately held Unicorns may be negative to
the tune of hundreds of billions of dollars.

17. How will Stock Market Decline Proceed?
 Past two crashes occurred over a year or so with many ups and downs
 Current decline will also have ups and downs along with likely
government interventions
 Governments bailed out stock markets in March 2020 with lower interest
rates and asset repurchases
they may again intervene by not raising interest rates much or by not
tapering as much as they have said they will do
 There are many variables that will affect the speed and extent of the
decline, but the big losses suggest the decline will happen