Investing in unicorns is like buying lottery tickets — the chance of winning big is extremely low.
It's easy to fall for Silicon Valley's billion-dollar startups, getting caught up in the story of innovation and disruption. But think twice before you jump in head-first when they began finally trading on Wall Street.
However, for average investors who would buy their shares in the secondary market, investing in unicorns is like buying lottery tickets — the chance of winning big is extremely low if you were not one of the lucky few to get allocated shares in the IPO.
Uber rival Lyft, the first unicorn to get out of the gate this year, serves as a reminder of how risky it can be for regular investors to buy hot IPOs in the open market. Shares of Lyft surged 9 percent on its debut, then sunk 12 percent on its second trading day to below its IPO price and have still struggled to bounce back. Skeptics have since got louder, saying buying the stock is "a leap of faith.
"After lockup expiration some investors, especially venture and growth capital investors, do start selling, which can put pressure on the stock price unrelated to fundamentals,"Draho said.
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