Many people have been chiming in on the unicorns and what it is doing to the state of investing. It has become part of the echo-chamber in the tech industry. Mark Suster went off on a rant that I concur with.
Companies take time to grow. Pushing money down the throat of a company to grow quicker or to just grab more real estate without a path to actual profitability (ever) is scary. At one point those companies either explode into oblivion or they have something worth something to someone and find a way to exit. Although the people who put money in the last few rounds more than likely will lose their shirts. I find this behavior fascinating and it is fueled with this desire to create another unicorn.
I had this conversation with someone who comes in very late to the investment process. He is top of the charts smart and understands actual valuations when it comes to the Series D+ rounds. These rounds are not about gut they are about real numbers and an analysis of what the real trajectory is and of course the real valuation. In the past those rounds are not so out of touch with the public markets that smell bullshit and have zero interest in buying into it. For some reason we are seeing a lot of people jump in super late with blinders.
I have been spending time talking with a handful of investors who look at consumer products. Most of them have been in that arena a long time. They get how long it takes to build a company and they are willing to ride that long wave. They are also happy to bet on companies that might be worth over a hundred million dollars that can be profitable. Those might not be unicorns but I’ll take that kind of investment any day of the week.
I am not convinced we are going to see a bubble burst because there are a bunch of companies out there that are building intelligently and are working their asses off year after year and it shows. There are plenty of losers too but time will prove that they aren’t or that they are. There are no shortcuts. Once in awhile there is a hit on something that just explodes overnight but that is rare.
One founder I invested in met with a possible investor a few months ago. He asked her if she could guarantee that there would be an exit in 3 years tops. That is what he expected. She asked me what did I think about that. What did I think? That it is utterly ridiculous and an investor like that is expecting some kind of miracle. My suggestion…tell that guy to take a hike.