The esteemed honor of joining the unicorn club, or having a startup valued at more than $1 billion, is suddenly not so prestigious anymore. Now, many of the club's members are learning that silicon is not bulletproof; and they're learning it the hard way. As more and more later-stage private startups are deemed overvalued, it becomes almost undeniable that the unicorn bubble is deflating, and entrepreneurs of small businesses everywhere should be using this trend to their advantage.
All too often in recent years, brand new companies that should be receiving smaller investments have been receiving investment amounts typically reserved for late-stage funding rounds. This mistake is now starting to catch up to both those who invested and their business recipients. A valuation is usually a completely intangible number, and this being the only credential needed for entry into the unicorn club could mean its own demise. The road these companies are riding on is not sustainable, and it won't take much more fuel before we could see it go up in smoke.
In 2013, there were 38 unicorns across all tech sectors. One year later, in mobile Internet alone, that number nearly doubled, as did their collective value. With venture capital getting handed out like candy, it was almost as if our country had hit another gold mine, and everybody wanted in. The startup community has become so flooded in capital, you no longer even need a viable idea to get in on it, let alone a long-term strategy.
Too many of these unicorns are like one-trick ponies, and they're subsequently starting to suffer from it. Though these cash-rich companies have plenty of growth to show for, most lack competitive advantage with little long-term value. With far too much venture capital given out to them in such a short period, was this bound to happen? In September 2014, Marc Andreessen, one of the most respected tech investors in the world, predicted that many unicorns in development would be "vaporized" if they didn't get their spending under control. The warning signs were there, but with more and more capital just a phone call away, it was hard to listen.
As the bubble deflates, today's tech market has knocked down the barriers to entry for most small businesses, making it the prime time for entrepreneurs to plant more seeds and grow. Entrepreneurs should use unicorn deflation as a reminder of where the real value is. Trying to live up to an absurd valuation can start you out with your feet buried in the mud. Instead of fighting an uphill battle to live up to expectations, grow your business realistically and the results will show.
As giants start to deflate, a lesson should also be learned in overhead management. As a small business owner, you are at an immediate advantage because your overhead is low. Keep the "quality over quantity" mentality while growing, and watch your cash as if a recession were around the corner. As the cycle of business churns, things that seem too good to be true usually are. Many overvalued startups learned this lesson the hard way. So for entrepreneurs growing their small businesses now, remember that slow and steady always wins the race.
Manick Bhan, a former banker at Goldman Sachs, is the CEO and CTO at Rukkus.