Unicorns And Yetis And Griffins, Oh My!

Unicorns, yetis, griffins -- these are the topic du jour in Silicon Valley.  It used to be we talked about tangible topics like revenue, ROI, and customer experiences -- but today the press is all about mythical creatures and whether or not they’re real.

The hyperbole around these mythical creatures is actually an analogy to discuss what may or may not be considered a bubble in the investment world.  The answer varies by whom you speak with, but there’s one thing  for certain: If there's a bubble, I doubt its implosion would have as much effect as the last one did on mainstream business.

There are two reasons I believe this is true. First, the floor of this digital economy is higher than it was back in 2000-2002. Digital had not yet become ubiquitous then, and the rest of the economy didn’t care too much if the floor fell out from underneath companies like Yahoo, Infoseek and Excite.  These days the digital economy is woven into everything, from your computer to your house to your mobile experience; the average consumer cannot go about her day without a digital connection.  That kind of reliance on the Internet did not exist last time around, but now that it does, it’s hard to fathom these companies crashing in the same way they did back in 2002.



My second rationale for downplaying the bubble and any resulting crash: most hyper-inflated companies are running stand-alone, consumer-facing businesses.   The Unicorns, as they are often called, are more often companies like Uber, Lyft, Snapchat and others who’ve created large user bases and have not been as focused on revenue to date. their success is not crucial to the the rest of the economy. If these companies hit a cliff and their opportunity for revenue falters, their implosions would be silo’d, with little ripple effects on the rest of the digital landscape. 

Meanwhile, infrastructure companies' values are tied to revenue and would not take as sustained a hit. Primarily in B2B and acting as the foundation of the tech sector, these companies offer data management, advertising and marketing technology, business services like HR and back-office project management. If they are not hyper-valuated, then their crash would have less impact.

I agree there could be a crash in the areas of venture capital and start-up investments, which would translate to a reduction -- even a drought -- in early-stage investment over the next few years.  However, a similar situation happened four years ago, so VCs have already begun to avoid this stage already.  That’s left the door open for angels to come in and get involved. If there is skittishness, then the angels are the ones that may decrease their propensity to fund, leaving more start-ups to bootstrap their businesses, or for early-stage companies to find new ways to fund their ideas.  This could lead to more acqui-hires and related types of investing, with established companies investing in ideas with teams at pre-negotiated buyout options. 

All in all, while I love a good mythical creature or two, I don’t think the depth of this discussion is warranted.  This is a media cycle and a topic that will quickly burn out, but it does leave entrepreneurs with a very important takeaway: Don’t be afraid to focus on revenue at an early stage.  If you can’t justify the business model, you can’t justify a mythical valuation.   If you focus on revenue, or at least implement a plan to get there at an early stage, then you are less mythical and more prehistoric.  After all, isn’t it better to be a dinosaur, once ruling the earth for millions of years, than to be a unicorn, a creature everyone loves but who never truly existed?

I guess it’s a matter of personal taste.

1 comment about "Unicorns And Yetis And Griffins, Oh My! ".
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  1. Nicholas Fiekowsky from (personal opinion), March 18, 2015 at 5:16 p.m.

    With cloud computing, there's a lot less capital per start-up this time. Very few feature computer rooms stuffed with expensive hardware, so the craters could be smaller and the assets reused almost immediately.

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