A man wearing an unicorn costume plays at a computer during the Intel Extreme Masters Katowice 2019 event in Katowice on March 2, 2019. BARTOSZ SIEDLIK/AFP/Getty Images

In November 2015, tech investor Marc Andreessen weighed in on a hot debate about whether Silicon Valley's start-ups were frothy from all the cash propping up so-called unicorns, or venture-backed companies valued at $1 billion or more. Andreessen noted at a Fortune conference that the whole class of billion-dollar start-ups, headlined by Uber and Airbnb, was "worth half of Microsoft," and he opined on the hypothetical choice of investing in Microsoft or the "basket of unicorns." He suggested the unicorns were a better value. "As a basket, it's almost certainly too low," Andreessen, co-founder of Andreessen Horowitz, told Fortune's Alan Murray. "Microsoft's a fine company, but you need a couple to really take off, and it becomes very clear in retrospect that they're undervalued." (Microsoft was actually worth $433 billion at the time, and the unicorns were valued at a combined $504 billion, according to The Wall Street Journal's "Billion dollar start-up club" tracker. Andreessen, through a spokesperson, declined to comment.) In the long run, Andreessen could still be right. But three and a half years after those comments, the straight Microsoft bet would have yielded stronger returns than the non-existent unicorn index.

Since Andreessen's session on Nov. 3, 2015, Microsoft shares have gained 133%, closing on Friday at $126.24. The value of unicorns over that stretch, based on the Journal's tracker, has climbed by 89%, with a good chunk of the value creation coming from companies that have since gone public or been acquired. The start-up group has still done fine against the broader market, solidly beating the S&P 500, which is up 34%. But Andreessen's view reflected both the tendency for Silicon Valley investors to downplay the ability for Microsoft (and probably other mega-cap tech companies) to continue growing in the face of stiffer competition, and their willingness to pay up for companies that in many cases were years away from being able to justify their price tags.

Source: CNBC