Why high valuations are secretly killing tech unicorns — Martino Cadoni [Deepl]

Preference shares turned high-valuation unicorns into zombies

Martino Cadoni runs finance at DeepL and thinks the CFO belongs in the driving seat, with as much attention on the balance sheet as on the P&L. The unicorn era's damage came from deal structure. Companies raised at rich valuations with preference shares whose thresholds they could never clear, so they could not raise near their last round. Fundraising, IPOs and exits rest on the same readiness, and AI's open question is how to bill for it.

Takeaways

• Preference shares turned rich valuations into traps. Under Basel rules preference-share equity does not count fully towards a bank's capital. Companies that raised at high valuations with high preference thresholds could not raise near their last round and became zombies, and founders chasing a $1bn round accepted terms that made that likely.
• Fundraising, IPOs and exits all rest on readiness. A US IPO brings Sarbanes-Oxley compliance and demands predictable performance so a company can guide and then meet or beat it. Late-stage investors target a three-to-five-times valuation increase over three to five years, hold for five to seven years and want 30-40 percent annual returns.
• Keep the cap table concentrated. DeepL's cap table is concentrated among Benchmark, Index Ventures, GIC and Ontario Teachers, so Cadoni manages investors one to one. A company raising a down round at half its last valuation must show the new investor a route back.
• AI's uncertainty sits in the business model. Per-seat subscriptions are one option, and the industry is debating usage-based billing, which DeepL uses, and outcome-based billing, which makes forecasting hard. Cadoni says the froth is a valuation problem rather than a technology one, and DeepL's biggest threat is competitive intensity.
• Rising rates squeezed fintech lenders. Bank deposit costs follow central bank rates, spreads compress and loan demand falls when rates rise, and non-bank lenders relying on private credit could not find money below 15-20 percent. Revolut weathered this by diversifying beyond lending into fee and subscription revenue.
• Finance should accelerate, not brake, the business. Tech companies focus on the P&L and neglect the balance sheet. Easy wins include paying invoices on the due date rather than early or late, and hedging currency exposure rather than speculating on currencies. Payment authorization and decline rates are worth watching too.

Cadoni's path to DeepL

1. GE's leadership programme rotated him across geographies and businesses, starting in commercial finance at a GE energy business in Budapest and then financial planning and analysis in Italy.