Becoming a unicorn was the main goal of many start-ups over the last decade. With venture funding drying up and many young firms’ survival in doubt, the cockroach is the answer – do whatever it takes to survive.
In the past, Southeast Asia attracted abundant capital from investors eager to bet on one of the fastest-growing internet economies. Perpetually growing teams was the norm at richly funded companies and for many young leaders and staff, this was the only environment they’ve ever known.
Now the startup ecosystem is facing headwinds. Global venture funding slumped to US$74.5 billion in the past three months, its lowest level in nine quarters, according to CB Insights. That represents a 34% quarterly drop, the biggest in a decade.
After reaching sky-high valuations, tech companies the world over have seen the worst year of their lives amid surging inflation and interest rate hikes. Many are cutting jobs and shutting parts of their operations to shore up balance sheets ahead of a potential recession. It is not valuation that matters but cash runway.
Founders who’ve been through previous cycles remained upbeat about the prospects for companies with proven business models. As in previous downturns, efficiency is emerging as a key focus. It was always about growth. But now it is about efficiency.
Reality (and the real world) has finally struck owners of tech start-ups. Valuations based on DCF, Earnings, NTA were all thrown out with multiples on revenue as the norm for these growth companies. So long as there were increases in revenue, any cash flow deficit arising from growth could be met by investors! That is no longer the case. In these uncertain and volatile times, it is better to be a cockroach and survive than try to be unicorn and die!
Reference
Unicorns become ‘cockroaches; when tech funding drives up, Yoolim Lee and Olivia Poh, TheEdge CEO Morning Brief, 13 Oct 2022
No comments:
Post a Comment