Bill Gurley wrote a fascinating piece a few days ago. Required reading if you are in the startup ecosystem. I encourage you to read the full piece, but you can get the high level overview in this article by Re/Code.
The death of the unicorn has been widely predicted for the past year or so and no doubt it is time for the herd to be thinned. A healthy thing really and many will survive to continue the unique position of a true unicorn. Many will have a much harder time.
A quick story that I often think of as it relates to business ... from the soccer pitch.
My son was (and likely still is) a pretty good athlete. He played baseball for a couple years in college, but he was probably more skilled in soccer. As a left footer and quick, he gravitated to the back as a left back. It's one on one most of the time with the opponents speedy right forward. Those boys can really mix it up when they get to be D1 U16.
Another dad mentioned to me::
- It is OK for the ball to go past the last defender (a long pass to no one).
- It is OK for the man to go past the last defender (without the ball).
But it is NOT, NOT, NOT OK for the man to take himself and the ball past the last defender.
At work, I think of similar things as it relates to Growth and Profit.
- It is OK to be growing quickly and lose some amount of money (the Unicorns have taken this to an unsustainable extreme though).
- It is OK to be profitable and not grow as much
But it is not OK to be both shrinking and losing money. A recipe for disaster. Or certainly a case for some of the draconian measures that await some of the unicorns that all start with the word down (down size, down round, down the drain, ... ).
Even if encouraged, why would you give up control of your destiny? When uncertain times come, it sure helps if the business can reach a sustainable point without the need for outside capital.
Even more disturbing is the lack of deal transparency between the investors/managment and employees. You may think that the calculation of your expected returns would simply be the last round valuation multiplied by your percentage of the company. You would be wrong. There will always* be protection for the investors that you will not know about until a liquidation event. A great book on the inner workings of deals is by Brad Feld. Why isn't the cap table and term sheet available for all to see? It's as if there is a secret(s) being kept.
A last shout out to HBO's new season of Silicon Valley. I'm sure you have devoured seasons 1 and 2 like I have. Shocking that it has fans outside the tech space but so glad it keeps delivering.
Go read Bill Gurley's piece now! You may want to wash it down with a few beers.
* I "almost" never say always or never, but in this case it is safe to say always.