Mad Money

Cramer: Billion dollar unicorn start-ups—beware!

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As Jim Cramer headed to San Francisco's Dreamforce conference this week, he kept hearing about these fantastic "billion-dollar unicorn" companies that are disrupting technology industry and waiting in the initial public offering wings. And while they may have sexy products and sky-high valuations, these unicorns scare the heck out of him.

"I am more afraid of being hit by a speeding fastball of money being tossed at a start-up than I am of anything the Giants can throw at the mound," the "Mad Money" host said.

Cramer sees the same investors over and over again screaming hot, hot, hot over these prospective public companies. But he wondered, hot to whom?

So while Cramer may not be a technology expert to determine the winners or losers at Dreamforce, he does know one thing that many do not know at the conference.

"I know the stock market, and I can tell you that this stock market is uniquely inhospitable to pretty much every single unicorn out there with only a couple of exceptions," Cramer said. (Tweet This)

Venture capitalists can talk their face off about addressable markets and destruction of competition, but Cramer questioned if they know anything about the stock market or the kind of shareholder demand that ultimately controls the profits that these companies make. There just isn't enough money coming in from the sidelines for the unicorns to be able to buy these deals.

I know the stock market and I can tell you that this stock market is uniquely inhospitable to pretty much every single unicorn out there save two.
Jim Cramer

To clarify, Cramer was not referring to Airbnb and Uber. He said they are not valued at ridiculous valuations because there are so many people that use their services, and believes there will be an appetite for both retail and institutional investors. He added that there will be plenty of room for both companies, just as there was for Facebook and Alibaba.

Rather, Cramer is referring to any of the so-called disruptive companies that jump on the sharing economy bandwagon with algorithms that do things like crowdsource or enable mobile payments and digital wallets. Enough already!

Cramer went down the list of money that has been lost in cool things that many people use: Yelp, Box, Twitter, HomeAway, GrubHub, Millennial Media, Rocket Fuel, Lending Club and Etsy.

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"These are thanks-for-nothing companies. Meaning, thanks for bringing public companies that ultimately killed our portfolios," Cramer said.

Cramer suspects that the average investor is now sick and tired of exactly these kind of stocks, and many of the money-losing companies will find the IPO window nailed shut going forward.

"So, unicorns of the world listen up: never forget that your ultimate exit market isn't the consumer, it is the people who buy stocks. And in this extremely difficult market for IPOs your companies aren't welcome until they grow not just a horn, but some profits," Cramer added.

In many cases, those profits might just be as rare as unicorns themselves.

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