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Billion Dollar Start-Up Secrets - By Charles Payne

The market took a hit yesterday, although climbing off the low of the session, there simply wasn't any desire to own stocks. On that note, would-be sellers mostly kept their cool as well. Chart formations like higher lows and highs remain intact, but agonizing over another failed opportunity to liftoff sent some investors to the sidelines. The following is a year-to-date chart of the S&P 500:

Billion Dollar Start-Ups

One of the biggest secrets of Silicon Valley's billion-dollar businesses, or Unicorns, is how companies go from zero to millions of users and subscribers in a flash. The answer? They steal them! Growth hacking is just one technique and everyone does it.

This matters to you because over the next year, individual investors will be seduced into buying hot IPOs that have already gone through the roof in private hands…some will be worth chasing. Others will be disasters.

Case in point, a takeover yesterday you didn't hear about is perhaps the biggest cautionary tale for investors. Hot Topic is paying $17.50 for GeekNet, a 122% premium. Sounds great, right?

Well, Geeknet was Source Force, and before that, VA Linux. If it sounds familiar, it should: the company still holds the record for the biggest first day of trading move.

First day VA Linux:

  • IPO $30
  • First Trade $299
  • High $320
  • Close $239.50
  • +698%

Yesterday, Geeknet sold for 93% less than its first day of trading.

Uber Winner

Yesterday, there were scenes of massive protests in Mexico City and London over Uber.

There hasn't been anything this disruptive since the Atomic bomb, and in business, since the horseless carriage made its debut. In New York, the Taxi and Limousine Commission (TLC) has decided that going on offensive is the best defense after Uber cars passed medallion cabs this year.

  • Uber 14,088
  • Medallion 13,587

The TLC is allowing two-year-old cars to be painted yellow and join cab fleets….so far, five have taken the bait and apparently seven more are in the process.

The ultimate Unicorn is more like a bull in a china shop…can it be stopped? Should government intervene? I think the answer is no - in fact, what's happening in the Uber-World is happening in the cable television world and will happen in other areas as well. It's called creative destruction, and it's what made America and American companies the best in the world.

It's why life expectancy has more than doubled and everyone has a television and affordable food.

Today's Session

Equity futures have pointed higher all morning, although it's hard to classify this as more than an oversold bounce. On that note, strong earnings from Tiffany & Co. (NYSE:TIF), Brown Shoe Co., Inc. (BWS) and DSW Inc. (NYSE:DSW) cover the spectrum for consumers, with the miss and warning from Michael Kors Holdings Limited (NYSE:KORS) more company-specific and handbag/watch related.