How can early stage founders realistically sell unicorn outcomes?

1 point

2 years ago

When “Unicorn” was first coined a decade ago, there were just 39 unicorns. And then we remained in one of the longest low interest rate environments ever.

Are unicorns a thing of the past? Or a realistic and sustainable aspect of the future you are authentically counting on?

With the super low probability of a unicorn outcome and today’s environment, is this actually an ethical and fiduciary outcome we should be committing to and promising investors?

Even in the best interest rate environment of the 2010s-2021, out of x number of investments in any given portfolio, how many have achieved/will achieve unicorn status within 10 years?

Is a founder supposed to disregard all this and sell you on a 10-year $1bn vision anyway? Is that the hallmark of a responsible, ethical, venture-backable founder? We all know the numbers at this stage are merely guesstimates anyway.

Is it possible that responsible VC could involve more patient capital?

As we are forced to start to rethink a world of growth at all costs and high inequality, and increasingly prioritize more regenerative, inclusive, and sustainable long-term value creation, there has got to be a better way.

I’m not trying to insult anyone, there are a lot of really intelligent people who believe in this model for VC. I’m just trying to understand.

Here are some of the recent news / articles that shape my thinking:

Fortune From unicorns to unicorpses: Why billion-dollar startups and even VC firms keep imploding Jan. 25th, 2024 Examples include Convoy Since 2022, “Macroeconomic forces have refashioned every link in the chain of the startup ecosystem” “Until the past decade, companies rarely became so valuable when they were private. That’s why “unicorn” was first coined in 2013—if a company could achieve a valuation of $1 billion as a private company, it was a rare badge of success. When Fortune published a cover story about these burgeoning behemoth startups in 2015, there were only around 80 that had joined the $1 billion club.” https://fortune.com/longform/failed-unicorn-startups-billion-dollar-valuation-unicorpses/

Pitchbook Despite AI boost, unicorn creation hits 6-year low Dec. 31, 2023 https://pitchbook.com/news/articles/unicorns-startups-2023-valuations-generative-ai#:~:text=Email-,Fewer%20unicorns%20were%20minted%20in%202023%20than%20any%20year%20since,2023%20PitchBook%2DNVCA%20Venture%20Monitor.

Fed Funds Rates https://www.macrotrends.net/2015/fed-funds-rate-historical-chart

Bain Under 1% of unicorns are profiting at scale with true business success despite $1 billion-plus valuations—Bain & Company analysis Nov. 9, 2023 “The number of unicorns – start-up businesses with $1 billion valuations – has mushroomed from 39 when the term ‘unicorn’ was first coined a decade ago, to almost 2,500 companies founded in the past 20 years, Bain & Company research shows. Yet despite the proliferation in unicorns’ numbers, under 1% of these businesses generate $1 billion or more in revenues and cash, a truer measure of sustainable success, a new Bain study, Herd on the Street: So Many Unicorns, So Little Cash, reveals.” “Of some 225,000 companies founded during the past 20 years, only around 2,500 have achieved $1 billion market valuations (including public and private businesses).” https://www.bain.com/about/media-center/press-releases/2023/under-1-of-unicorns-are-profiting-at-scale-with-true-business-success-despite-$1-billion-plus-valuationsbain--company-analysis/