Tag Archives: #valuation

CHANGES: lessons learned


Old wisdom says that the only constant is change. Time works great changes. We are living them.

More so than most, the startup ecosystem is constantly changing.

There are the repeating cycles: bubbles and downturns will always exist, whether large, small or in-between.

Our effort over the last few posts has been to focus on what is happening currently and link to those with enough knowledge and wisdom to possibly predict what will be next.

You don’t want to see your company lose nearly 20% of its value because you missed a trend or ignored a warning sign.


Illustration by BRIAN STAUFFER

In 2016 Bill Gurley, a savvy venture capitalist who invested in Uber and Snapchat, was the first to issue a warning to unicorn investors — one that was actually heard.

Many things have changed, including tech layoffs as a sign of a slowdown in booming Silicon Valley.

Over the last few weeks we wrote a series of articles about these changes. Here is a  wrap of the important points, AKA, lessons learned:

  1. Short-term thinking; continued fund raising instead of exiting (IPO, acquisition, organic growth, etc.), employee valuation-watching and candidates joining for riches, instead of passion.
  2. 2016 will be a year of tightening investment. The reason we are all in this mess is because of the excessive amounts of capital that have poured into the VC-backed startup market. Perhaps now startups will get back to the basics, i.e., make a product people or companies want and will pay for > sell it to drive revenues > run/grow on operating cash > and make a profit. Now is the time to do more with less and be a RABBIT (Real Actual Business Building Interesting Tech).
  3. Hiring changes: when the easy money faucet turned on many startups found themselves drenched in cash. When the faucet was turned down, and investors returned to the old fashioned values of profit and sustainable business models, over-funded companies, such as Dropbox, started eliminating perks and cutting staff, in order to lower their burn rate and conserve cash. Bad for the unicorns (fast becoming unicorpses), but good news for companies, such as Google, Facebook, etc., that have the revenue to continue to offer fat salaries and multiple perks.

Now is the time to lower your burn rate and do more with less. An interview with Miki provided encouragement and links that show there are great advantages to starting a company when money is tighter.

Rabbit blog post: time to do more with less

Salesforce CEO Marc Benioff and investor Bill Gurley, among many others, believe that 2016 is the year that many unicorns will morph into unicorpses as valuations tumble amidst tightening money.

So does that make 2016 a bad year to start your company? No, in fact, just the opposite.

According to Jason Calacanis, angel investor and founder of Inside.com “Great companies are like great captains; they make take advantage of smooth sailing times like now, but are not afraid of rough seas that eventually show up.”

Jeff Grabow, EY Americas venture capital leader says, “If you talk to venture capitalists, they’ll all tell you the best time to start a company is in a downturn.”

And Mike Abbott, general partner at Kleiner Perkins Caufield & Byers, made a great point when he said, “We’ll stop seeing particular folks starting a company for the sake of starting a company, because they see it as this romantic endeavor.”

But it was CB Insights CEO Anand Sanwal who said it best, “While it’s ‘fun’ in a schadenfreud’y way to claim some absurd number of unicorns will falter in 2016, it misses out on the fact that 2016’s climate may force many of these unicorns to become RABBITs.”

Rabbit? Who wants to be a rabbit? You should. Being a rabbit is much like Andrew Wilkinson’s horse that we mentioned last week.


Image credit CB Insights via Business Insider

The biggest difference going forward means that your valuation will be based on real revenue as opposed to funding rounds — more like Apple / less like Uber.

You’ll learn to do more with less and will stretch not only your dollars, but also your pennies. And your team will learn along with you.

For those of you who haven’t experienced a tighter economy or worked through a real downturn the actual experience can be off-putting, if not downright frightening.

Join us next week for cornucopia of ideas and resources to do more with less.