Stop Chasing the Mythical Unicorn

For anyone who would listen, I have long said that 'unicorns' are bad for investors, bad for the market, and go against all logic for business fundamentals.?

CBInsights just released a new report, saying as much ?

When I wrote my book, and it became the best selling primer to get started as an angel investor.? The concept of a unicorn was new then.? Here is the Inside Secret that addressed that new phenomenon in 2017:

There is a lot of hype about companies that are referred to as “Unicorns” – companies with billion dollar valuations.? Venture Funds, and thus the Super Angels, are looking for their next Unicorn.? Time will tell if these hyper-valuations will sustain as that market cap translates to a publicly traded stock.

Entrepreneurs love to say: 'invest because 'this will be a unicorn'" without really knowing what that means.? Sure, if a company actually gets to hundreds of millions in revenue, it will absolutely be worth $1B.? Yet, most of the 1200 Unicorns don't have anywhere close to that in revenue, and definitely not the profit to create a multiple that equals $1B or more.??

The $1B? Question:? So how do startup companies become unicorns if they don't have the revenue, the profit, the business model, or the operations to generate hundreds of millions of dollars in revenue????

The $1 Answer: A charismatic founder pitches a big picture of what his company could become, and instead of starting out at the typical valuation of a startup - $1M - $5M, they start at $20M.??

Investors chasing the mythical unicorn status, and in some cases more money than sense, invest $5M.? And then the magic journey begins, because without doing anything, without generating any revenue, the value is now $25M. ? That process continues with each round getting bigger and the valuation growing, while the company is chasing that tail.?

This snowball effect on the value of the company works as long as:

* investment capital is readily available,?

the cost of money is relatively cheap (think interest rates), the economy is growing, and?

* the ability to exit on public stock exchanges is a clear path to liquidity?

* because retail investors are hungry for hot new stocks.??

This is the same sequence of events that led to the Dot.Com Bubble -- remember that?? I cover this in detail in my book Inside Secrets to Angel Investing, how and why it happened, and issued a warning to startup and early stage investors - don't get caught up in the hype.? Investing in an entrepreneur that can't generate revenue sufficient to create a multiple on your money, and subsequent investors, is a sure fire way to lose your money, or get squeezed out in a down round?

Buy the Book: LINK: https://InsideSecretstoAngelInvesting.com?

Gregg Ficery (Integgra Valuation & Advisory Services) and I sat down to talk about valuation and the sensible approaches to determining value at the seed stage, on toward subsequent rounds and exit, usually through acquisition.??

https://www.dhirubhai.net/posts/karenrands_valuation-businessgrowth-entrepreneurship-activity-7248078314471354368-2pjy?utm_source=share&utm_medium=member_desktop ?

You can LISTEN & WATCH the episode because it is on Spotify as audio and video - Migration of the Compassionate Capitalist Show is complete. ? Video link is just under the title?

LINK TO SHOW:? https://open.spotify.com/episode/40pqbTpJ8uV7ELK4GbAi8I?si=aCyWqusmTf6o3pHvUuOaNA%0A?

Please subscribe and follow the channel.?

CBInsights is a phenomenal think tank that gathers data on relevant topics and collects statistics for forecasting that is the best in the industry. ? This is their teaser from their email, click it to get the full report

https://www.cbinsights.com/research-unicorn-companies

Bottom line, to make wise investments for Purpose, Passion and PROFIT... don't get caught up in the hype and the 'lemming' effect that investors fall victim too when they assume the 'other guy' has done the analysis and due diligence that this company has the potential to create a return on investment.? Because after all... Investors that fund entrepreneur innovation , rather than just buying and selling crypt or public stocks, do it because the are passionate about the problem being solved (COMPASSION), AND they do it with the expectation that they will make money (CAPITALIST). Without the second, it's a donation.?

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