VC-Unicorns Vs. Real-Unicorns: The 2 Disastrous Impacts Of VC Hype
WeWork became a VC-Unicorn and then lost its luster when investors realized that the company was a financial sieve.
Theranos became a VC-Unicorn that was ostensibly based on a scientific breakthrough from a freshman-dropout without any science background. After raising a pile of capital and being feted by presidents and the Silicon Valley crowd, it turned out that there was no “there” there.
Sam Bankman-Fried is the latest incarnation of the fallen VC-Unicorn. He raised billions from “smart” money, and also from the general public. It seems like Bankman-Fried was a student of W.C. Fields who said: “It’s morally wrong to allow a sucker to keep his money.”
All of the above attained the coveted VC-unicorn status accorded by VCs to ventures that reached $1 billion in VC valuation – and failed. And they are not likely to be the only ones that become VC-Unicorns and fail.
There are 2 kinds of Unicorns – VC-Unicorns and Real-Unicorns.
VC-Unicorns can be Chimeras of Value. They are ventures that attain the magical billion-dollar VC valuation status in its last VC round. At this stage, the media goes into a delirious blather about the entrepreneurial geniuses and especially about the “smart” money behind them. Achieving VC-Unicorn status is seen as a mark of venture achievement, and growth-seeking entrepreneurs seem to value it very highly. But this valuation can be adjusted if the venture does not achieve goals.
You too can build a VC-Unicorn – in one week (as I have noted before). Yes, you read that correctly. You too can create a VC-Unicorn in a few days. The venture’s value in a VC round can be easily manipulated with the right agreement and financial instruments. Anyone can create a billion-dollar unicorn in a few days and this link shows how anyone can do the same. If you do follow these steps to build your VC-Unicorn, please let me know. It would be great to keep track of the brilliant minds who follow this unique strategy to start a VC-Unicorn.
Real-Unicorns have Real Substance. A Real-Unicorn is a venture that has been built from scratch to more than a billion-dollars in valuation – and sales. To create a venture with billion dollars in sales and valuation, the venture and entrepreneur need substance, and it does mean that the entrepreneur has actually captured a substantial number of paying customers, in addition to achieving the highly desired valuation level.
The Proportion of VC-Unicorns to Real-Unicorns: The growth in VC is said to have resulted in 1,000 unicorns as of May 2022. But many of these VC-Unicorns have failed, will fail, or are suffering from down rounds with some estimates at around 90%, and many VC-Unicorns are flipped for unicorn-valuations without ever reaching Real-Unicorn status. A venture that has been flipped for billions may be a trophy for the VCs and the entrepreneurs, but painful for the corporate buyer. According to the Harvard Business Review, about 70 – 90% of all acquisitions fail – many corporate buyers make bad decisions. So do flips have real value, or chimeric value?
Entrepreneurs can benefit by evaluating VCs on their track record of creating real value, and not chimeric value, because many VC-Unicorns are possible only when the stock market is in a bubble. And it is difficult to predict the timing of the next bubble. This also means that the entrepreneurs should be in the driver’s seat, and get interest from multiple VCs, to be able to pick the right one. To get multiple offers, they need unicorn-skills to get to leadership Aha when VCs can see the real value of the venture and the entrepreneur. This is what entrepreneurs like Jan Koum (WhatsApp) and Mark Zuckerberg (Facebook) did.
MY TAKE: VC hype may have negative impacts on:
· Entrepreneurs who may have done better by learning the skills and strategies to takeoff without VC and control the venture and the wealth created, but were convinced to seek VC and failed, and
· Business school students who can benefit by learning the Unicorn-Entrepreneur model to build real unicorns by taking off without VC rather than the VC method that helps about 20 out of 100,000.