Here is what is wrong with this picture, a lot of poeple especially the ones that has been crying wolf for the past 2 years about a bubble, would love for Silicon Valley just to implode and go away.
Reality is that building a company; a real sustainable, profitable and game changing company is not a straight line. It is hard, it is damn hard. And the Venture Capital industry is a high-risk business were not every company will be a positive outcome… It is part of taking large risks to disrupt the status quo and create very valuable companies.
Many people wish for a quick fix in life, do A get B. Launch startup, get instant wealth, get an education and get a great job. Or just quick correlation; Silicon Valley is topping the game, or Silicon Valley is a failure. Venture Capital drives amazing returns, or Venture Capital does not work…
The world does not work like that. It is not that simple.
Google and a few other companies rightfully worth 100’s of billions of dollars were built straight through the .com crash.
Does that mean that every Unicorn is going to make it?
No.
The world does not work like that. It is not that simple.
But some will, and the ones that do, will drive multiple orders of magnitude of Venture Capital returns compared to what was invested in the ones that don’t.
That is how Venture Capital works.
It is a high-risk early-stage investment model, which also means that we can debate if Uber should we worth $60B or $20B. The Venture Capital investors that invested in Uber will make an amazing return if it is $5B, or $1B for that matter. The late-stage institutional investors that largely used to invest in public markets and made a round of bying into pre-IPO rounds of Unicorns might not.
But that is not Venture Capital returns, or Venture Capital investors.
Why are they doing so now? Because staying private has been much more attractive for companies vs going public, which means that those late stage institutional investors need to chase returns where they happen, which is pre-IPO.
So the slashing of a few Unicorns is not going to get Silicon Valley a hang-over. And recent development even if it goes south a fair bit for the Unicorn club, Venture Capital is still or more effective than ever. Also keep in mind, Venture Capital funds run at 10 year cycles (average lifespan of each fund), so you don’t invest for quick returns in Venture Capital.
But I do hope that we might get a more fair housing pricing situation in the San Francisco Bay area with a correction.
In BootstrapLabs we have companies that are tracking 100 times the valuation of what we invested at, and they are not even in the Unicorn club. If they go there, we might be tracking 1,000 times the money. Of course we like the latter, but we are still driving amazing Venture Capital returns if less than 10 % of our investments hit 100 times the money. And we are more likely to have ~ 20 % of our companies hitting that curve. If we add something that go even further it looks really really good.
But it is not easy and risks are high, but that is part of the game of Venture Capital and startups, and building the future.
