Ego vs. Profit
by Miki Saxon 
Yesterday’s post focused on the importance of financial controls.
The “horses” talked about yesterday are focused on profit and building sustainable business.
But when it comes to valuation, founders often focus on just one number: the magic B (as in billion).
This was analyzed in great detail in a post from CB Insights last month.
On the 31% of unicorns that are worth exactly $1B, partner at Lightspeed Venture Partners Jeremy Liew wryly noted (via this tweet) that it’s “potentially not a coincidence.”
Investors are still enamored by founders with their fast talk and passionate visions to “change the world.”
However, enamored or not, when funding, investors focus closely on CYA.
Which is easy, since investors have all the leverage, because they dictate the terms.
This is what is happening to get that exact $1B valuation. Even if the fundamentals don’t justify the $1B valuation, the investors can lay on enough structure and terms to get the founders to a $1B headline valuation (while investors have the protections they need). With the $1B valuation, founders get:
- desired media exposure to attract talent
- bro-grats tweets
- conference speaking gigs
- a place on this list
Of course, it’s the programmers, marketers, sales and support who actually build the products that will pay the price for the inflated valuation.
In these exit situations, common shareholders, aka employees, get fleeced.
Harking back to 2015, money has tightened again and being profitable is at the forefront of founder thinking — mainly because it’s the focus of investors.
Stockpiling cash is at odds with the model of most venture capital-backed start-ups, which typically raise piles of money to spend on growing faster. Many investors are now pushing their companies to turn a profit.
Shades of déjà vu.
Image credit: Purple Slog
