In case you missed it, 2015 was the year of the unicorn. Instead of spotting only one, we ended up with herds of them around the world. As of this writing there are 137 billion-dollar startups, of which I would say less than 30 percent are unique to the other billion-dollar startups. So while we have unicorn spotters, many of the unicorns seem to be clones of each other. Now here is the question. Should you join the party?
As Richard Shockey has joked with Shockey’s Law: “Money is the answer. Now what was your question again?” You can do a lot of business development with $1 billion, and the reality is that unlike the dot.com bubble there are good ways to use money that actually build momentum and develop markets.
While I look suspiciously at the $51-billion valuation of Uber, I see a company that has taken taxi/limo replacement to a new level worldwide and has wisely hired advocates to keep its disintermediation strategy free of regulatory roadblocks. On the other hand, there are at least two other billion-dollar startups that are Uber competitors and other than looking to ride the coattails, I am not sure their valuation will ever be recovered.
However, for that matter, I am not sure Uber can be worth that much if the autonomous vehicle changes the business model again. Regardless of these examples comes the meta-message that money is looking for homes that pay off. With a prime rate that makes savings go nowhere, and a stock market that reacts to rumors more than results, the venture capital market looks like a good place for returns. Another pro is the investment market is out there, and for the most part it is playing for longer term gains than it normally invests.
In the past, nothing threw a strategy off its game more than the clash between burn rate and revenue. The initial concept vs. paying customers and the desire by VCs for an exit often lead to untimely corporate mergers. Investors were quick to roll up bad investments into a single dog as to minimize loss and maintain reputation. This left the management teams abandoned and isolated with a strategy that may have needed more time, but have no way to get back in the game. This is not the case today, particularly if you make it into the billion-dollar club. Like the banking industry (and McGowan’s MCI) you become too important an investment to be abandoned.
To me, this hunt for unicorns has to be a bubble, and the investors may return to their old ways sooner than we think. There are several companies that I watch in the billion-dollar club that have nothing to justify their valuation except erroneous market sizing.
That is cautionary in two ways. It means that you can be evaluated based on bogus information that is supposed to represent smart money. This leads to losing focus as the unicorn trail moves further into dreamland. The second is that the hot partners that are supposed to raise your prominence in the market can easily be the emperors with no clothes that drive your value down by association.
When it comes to IoT, we have a lot of blue oceans of opportunity not fully developed. Being declared a unicorn makes it so that the unexplored ocean is sized without proper exploration. This can lead to horrible product design based on the need for the ocean to be big regardless of the currents in the blue ocean.
Whose call is it? The scariest part of unicorn her s is the possibility of a stampede. You can find yourself caught in the pack and unable to change direction safely. This can happen even if you are trying to avoid being a unicorn. I have talked to a few companies lately that have had logical A rounds, and they have shared with me their strategies to keep the market numbers logical. They recognize that it’s possible to be globally deployed for orders of magnitude less than in the days of the dot.com bubble, but they also recognize that customer acquisition and revenue growth are better barometers to success than interfaces and social chatter.
Carl Ford is CEO and community developer of Crossfire Media (www.xfiremedia.com).
Edited by Ken Briodagh