Tag Archives: #unicorns

Matt’s point of view: from unicorns to reality

Today’s guest post is from Matt Weeks, a serial entrepreneur and longtime friend of NTR.
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From Matt:

I saw a great article in BI about Postmates CEO Bastian Lehmann’s attitude towards hypergrowth.

For years, venture capitalists have been pushing hypergrowth over profits, at least though the initial phases of investment rounds. Investors told Lehmann to reinvest the company’s money in pushing more growth over building a sustainable business.

That advice didn’t go far with the Postmates CEO. (…) Lehmann argues that it’s the CEO’s fundamental job to have looked at the margins and made decisions early on.

“Companies that run for the last two years in hyper growth are now wondering how to make money.”

I completely agree — hypergrowth without a hope of unit economics that lead to profitability has always been a fool’s errand with precious few exceptions, and even those “superstars” eventually had their “come to Jesus” realization moments when investors got nervous and were anxious for at least a hope of a repeatable, profitable set of unit economics. It’s okay to use early capital to explore and iterate to figure out the product-market fit and pricing/monetization formula. But at some point there must be a path to profitable and repeatable unit economics.

There has been a sense that pushing the bidding of sequential funding rounds at ever-increasing valuations would create a kind of de-facto “momentum” and crowd-out 2nd and 3rd and 4th place contenders, or at least amass a large enough war chest to drive marketplace pricing down as much as needed to push competitors out of the running (usually also by creating such a huge and dominant brand that customer acquisition in a noisy market is too expensive to make progress to catch up with the so-called leader).

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At the end of startups-on-steroids era

In January 2016 I wrote Time to do more with less, referring to the importance of being a RABBIT (Real Actual Business Building Interesting Tech).

In it, I cited the new funding reality as predicted by Salesforce CEO Marc Benioff and investor Bill Gurley, among many others, who believed that 2016 would be the year that tightening investment would prevent  many unicorns from raising funds based on their last round valuation and bringing a new term into the tech lexicon — unicorpse.

As the walrus said, the time has come and the bell is tolling.Unicorn_single

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The indulgent years of cheap capital and billions invested on the basis of a great story, sans profit or even revenue, are over as investors sink ever deeper into reality and the old ways of valuing companies are once again in vogue.

Storied investor Bill Gurley issued a warning to unicorn investors in a lengthy essay posted on his personal blog. It is a must-read for all those in the startup ecosystem, not just investors, and includes links to other articles that bring the picture into sharp focus. His summation at the end is masterful. Continue reading At the end of startups-on-steroids era

Fidelity and valuations

My friend Miki Saxon knows I enjoy learning about the financial side of startups and last week she sent an interesting article.

In an appearance on Bloomberg TV, Y Combinator President Sam Altman said that “the whole back and forth and obsession over these markdowns and valuations is a dumb conversation.”

More than a decade ago Private Equity (PE) started investing in later startup rounds, including Facebook. The has accelerated, because of an ongoing trend that has seen more PE, mutual funds, investment banks, etc. moving into the private markets to get access to the current crop of fast-growing startups.

It was investment from companies such as Fidelity, Elevation Partners and Digital Sky Technologies (there are dozens of others) into companies, such as Uber, Dropbox, Snapchat, and Zenefits, that drove the multi-billion dollar valuations for companies with no profits and, in some cases, little actual revenue.

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Mutual Funds, such as Fidelity, do not revalue their holdings privately as do VCs. In November 2015 the investment giant publicly revalued the prices it paid earlier that year. Fidelity marked down its investments in many so-called unicorns, such as Dropbox, Snapchat and Zenefits, which, in turn, lowered their valuation.
Continue reading Fidelity and valuations