Most important metrics for 2016 startups
Greetings, everyone. My name is Artem and I am a co-founder of the startup analysis service test4startup.com
For over 5 years we have been keeping a close eye on the startup market and every year we publish different kinds of reports. Today I would like to tell you which startup metrics will matter most in 2016.
Without any doubts 2014–2015 were the years of the Unicorns: we could all hear about crazy investments into Uber and AirBnB. But let us look closely at what really is happening.
As you already know, over a short period of time Uber and AirBnB have taken leading positions at their markets. At the same time the largest taxi company doesn’t own any taxis and the largest hotelier owns no real estate. This has required significant financial injections. But as you know, these services are still unprofitable.
This kind of allocation of capital from investors to startups will inevitably lead to a certain lack of capital at the investment market in the nearest future. Starting from 2010 close competition among the investors has given startups rather cheap investment dollar, but the situation is likely to change in 2016. Now the main quality indicator of your project will be your unit economy — that is project efficiency — not annual growth rate.
Investments withdrawal from unicorn startups doesn’t mean complete apathy towards new unicorns. This only proves that in the nearest 5–10 years the cost of startup capital will increase.
Here are three reasons for this.
First, the federal funds will continue to raise interest rates that are very low at the moment. In 2008, the federal funds rate was only 5%. Today it is just 0.25–0.5%.
Second, the stock market and the elevated prices in the private startup equity markets will entice the hedge funds away from the private markets.
Third, venture capital VCs will not continue to raise near-record amounts of money. With more than $50B raised last year compared to a 15 year median of $17B, it is clear this allocation of capital will revert to the mean at some point. All of this points to less money available to startups.
When seed and Series A investors consider an investment in 2016, they will be asking themselves, “How much capital will this company need to raise before an exit?” and “How hard will it be?” Over time, raising money will become harder than it is today, increasing the risk for early stage investors that the startup won’t raise the capital it needs.
That is why if you have ideas or if you are still in doubt whether you should launch your project now or wait, our answer is — Do it! Each year the chance of getting investments will be increasing.
Yours sincerely,
Artem Gladkih.
