The Fall of Unicorns and Venture Capital's New Focus for 2023.

this is a translation of a linkedin post I wrote at the end of 2020

Let me break down the shift in perspective of high-risk investment funds.

🦄 🦄 An Incentive Issue 🦄 🦄

I'm not sure if you knew this, but the valuation of a startup is essentially an agreement 🤝 between founders and their investors 💰.

The methodology they use to value you depends on the funding round and who the Lead Investor is (psst. the one putting in the most money).

Since these are private market transactions, they can be quite subjective, and sometimes both the VC and the founders benefit from the company having unicorn status. 🦄

I'm not saying all unicorns reached that status this way, but in 2022, the bubble burst, and it was questioned whether this hyper-growth was real, forced, or even bought.

Why the fall?

🚀 The macroeconomic situation means there's less money in the economy to generate income, and raising capital is more expensive and challenging.

🚀 Market volatility "adjusted" the valuation of unicorns due to the fall of comparable companies.

🚀 The lack of resilience in many scale-ups during the crisis has pushed investors to rethink their investment approach.

So... if they're not chasing unicorns anymore, 🤔 what are they looking for now?

We can call them Zebras🦓, Camels🐫, Horses🐴, but it doesn't matter.

What I see investors are seeking today is called this: Profitability and Healthy Unit Economics.

Before, it was all about "growth at any cost." Startups were evaluated by relevant metrics that in no way demonstrated profitability.

❌ Active users

❌ Number of nights reserved

❌ Number of trips taken

But today, VCs are recognizing that if the COST of sale is greater than the INCOME, and this is consistent for all sales, then the company will have LOSSES.

I'm exaggerating, yes, they knew that. But profitability is now getting more weight, over the famous "path to profitability."

💴 Profitability >>> Path to Profitability 💴

How is profitability measured?

Through financial metrics and Unit Economics - they help you understand how much 💰 you're really earning and losing.

So, if you have a startup, I invite you to revisit your KPIs. Take a look and focus on the following metrics:

💸 CAC (Customer Acquisition Cost) - Cost of Acquiring a Customer

💸 CLTV (Customer Lifetime Value) - Customer Lifetime Value

💸 Revenue per Employee

💸 Revenue Growth Rate

💸 Gross Margin

What do you think?

P.S. This doesn't mean I'm against unicorns or condemning anyone. I believe there are nuances, and in innovation, there will always be failed attempts. That's the price we pay for wanting to revolutionize industries.

But, as I always say, failure is an opportunity to learn.

I hope both founders and VCs have taken note and will do better in the future.

Read original linkedin post here