Much has been made of the Camel v Unicorn analogy since the pandemic was thrust upon the startup ecosystem. It is now 3 years since it began, yet rather than emerging out of the darkness into a utopian sunlight of boom time, founders and investors are asking themselves the same question- “What’s next?”.
In 2023, both need to redefine what success looks like…and more importantly how to go about achieving it.
People often talk of an economic “winter”, but our four-legged friends, be they horned or humped, make me think in terms of desert.
This poses an immediate question – Would I rather be able to live in the hot air, or just be full of it like our inflatable friend?
Well, I know who my money is on, so how do we get there?
Let’s start with Startups – The first thing to recognise is that you don’t have to become a Unicorn to be a success. If you took your idea and seed investment and turned it into a $20m, $50m, $100m or even $500m valuation business, you are a success, maybe not an inflated Unicorn, but a success no doubt. So take the pressure of that status off yourself. Whilst we must all look to the future, the immediate focus is on the here and now. Be it a snowy winter blizzard or a sweltering desert storm, first, you must adapt to the conditions you find yourself in and survive. Make no mistake, survival is a badge of honour and success you can wear proudly in the future, and even leverage off in your back story. Show that you had the foresight and ability to make tough decisions, redefine your strategy, adjust your cost base, modify your solution, or even pivot if necessary as technology has evolved and the marketplace has changed considerably since we first heard the word Wuhan. That will act as a credibility proofpoint that as a founder or management team, you have what it takes to succeed. (As I am typing this, Mr Zuckerberg just appeared on my TV screen declaring ‘2023 is the year of efficiency).
Now that you’re still breathing, the next challenge is becoming sustainable – by that, I mean having the resources (capital) to keep going for as long as it takes until meaningful growth can be back on the agenda. This is where a new mindset is needed. Raising investment capital is hard at the best of times, let alone now, but it isn’t the only way. Whilst there is still plenty of so-called ‘dry powder’ out there in need of deployment, the smoke alarm is still sounding off in the casino and everyone still have their chips gathered, all waiting to see how big the current fire is. From high inflation and rising interest rates to a year-long war in Ukraine that is sadly ongoing, things are still smokey and the sound of fire alarms remain audible.
In the past, after securing initial investment, the model that most Startup founders followed was to try to perfect their product/solution, raise more capital and only then go after revenue by selling to the market.
Let’s start with this- in the words of Sir Winston Churchill “Perfection is the enemy of progress”. How many times do you hear successful founders spill the beans, confessing that in the early days, they sold to customers before they even built anything. The chances are, somewhere in your technology there is already something you can commercialise. Can you productise some nugget of tech you have and generate some stay-alive revenue? It’s not your grand plan, but it can be your water well in the desert, and maybe even a comfortable Oasis. If there is any way you can become sustainable by way of revenue, this will enable you to postpone the capital raise, putting you in an enviable place down the road. For starters, you are inherently enhancing your valuation, and becoming more investable by being a lot less risky. You are more likely to eventually raise investment on better terms as your valuation conversation becomes a little easier. When the Casino smoke alarm stops ringing, more people will be playing the almost even-money blackjack than the 37/1 roulette (don’t forget the zero). Stay in the game -there’s no rush to raise the stakes…not if you’re sustainable. Any Investor worth his sort will look at your startup favourably as you demonstrate all the characteristics of a company that successfully navigated its way through the 3-year storm, making you now worthy of their risk Dollars.
Investors are also finding themselves needing to redefine success. This is particularly challenging for VCs. This climate is both a problem and an opportunity in equal measure. On the one hand, they and their previously invested startups and ‘married’ to the inflated valuations of the recent past. Even the blow-up Unicorn pumped full of hot air Dollars is now looking existentially deflated in the cold desert night. Their investee companies are often either too scared (or too arrogant) for down rounds, yet burning through cash at a rate that even a two-humped camel can’t survive. Even startups with high revenues are still loss-making, as for them, growth is the only game in town. I’m sure many VCs are under pressure to pump more capital into these companies to protect their original investments and keep them alive. This is where harsh realities kick in and even harsher decisions need to be made.
Having said that, if investors (especially VCs) can redefine success, then it doesn’t have to be exclusively about finding the elusive Unicorns. Investing at $100m to achieve that $1bln status may well be a 10X return, but so is investing at $10m to achieve $100m, and even going from $2m to $20m is a 10x success. This is the opportunity right now, be Camel, find a Camel, back a Camel – and if you find the humped camel that against all odds, survived the lengthy storm, and succeeded in becoming self-sustainable without being dependent on investment, who knows, one day that humped beast might even find itself with a rainbow coloured mane and horn on its forehead.
#startups #investors #founders #VC #VenturCapital #camels #unicorns #angelinvestors #technology #startupnation
