Session Panel: Are Unicorns An Endangered Species$6 Photo credit: VivaTech
The tech world is fascinated by unicorns, those rare startups that achieve billion-dollar valuations. But are they becoming even scarcer$7 As the economic climate changes and investors demand more profitability, will unicorns still be able to grow and innovate at the same pace$8 Should valuation remain a key metric$9 And if not, what are the key factors that will drive their success and growth$10
We sat down with a panel of four experts to chat about it during VivaTech 2023. Jenny Fielding, Managing Partner at Everywhere Ventures; Ilya Strebulaev, Professor of Finance and Private Equity at Stanford; JP Lee, CEO and Managing Partner of Softbank Ventures Asia; and Maya Noël, Director of France Digitale.
We’ve seen fewer unicorns emerge over the last few months. Is this good news or bad news$11
“What we saw in 2020 and 2021, is really not sustainable. There were dozens of companies being minted unicorns every week. That’s just not realistic. The reset, although painful for everyone, including companies in our portfolio, is actually a positive,” explained Jenny Fielding.
Ilya Strebulaev and his team from Stanford have been following and analyzing every single US unicorn for a number of years. “We have found that valuations are indeed lower now compared to a couple of years ago,” he shared.
“Looking back in time, the most successful venture-backed companies of all time were created when valuations were lower. Either from 2001 to 2003 or from 2009 to 2011. This means that my students, the ones creating businesses right now, will be more likely to succeed than the ones that started in 2020,” Stebulaev announced.
Ilya Strebulaev and Maya Noël. Source: VivaTech
Are unicorns born in 2019, 2022, and 2023 all worth the same$12
The term unicorn means a business with a billion-dollar valuation, so one might think that all unicorns are worth the same. However, there are mixed emotions among the VC crowd.
JP Lee explained how Softbank Ventures Asia felt like they couldn’t do proper due diligence with
valuations in the past few years for fear of losing out on a startup. “We had a lot of founders that came to us with a ‘take it or leave it’ mindset because they had other investors wanting to give them a billion-dollar valuation,” said Lee. “But now, we have the time to look at the numbers and come up with a proper valuation. The unicorns that are identified today have a higher chance of being successful.”
For Maya Noël, becoming a unicorn isn’t based solely on the valuation. “In France, the president made a huge push for unicorns with a goal of 25 French unicorns by 2025,” she explained. “It became a common dream to achieve this goal. But this made the focus too much on the valuation of a company, which isn’t the most important thing for entrepreneurs. There are a lot more components to success than this.”
Jenny Fielding, JP Lee, and panel moderator Charlie Perreau. Source: VivaTech
So what are the indicators of a successful startup then$13
Unanimously the panel agreed that valuation wasn’t the only component of becoming a successful unicorn.
“When you look at the prediction of success, valuation doesn’t play the most important role,” Stebulaev stated. “It is the founding team, their experience, education, and work experience that plays a much more important role. For example, serial entrepreneurs, specifically ones that have experienced failures in the past, are much more likely to be successful. So we should go beyond valuation and look at all the factors that contribute to success.”
“Within those factors, it’s important to include metrics about the environment,” Noël added. “You can’t be successful if you don’t consider this in your strategy. Why build a company if it’s not for the planet these days.”
“It’s not just one factor. It’s about a lot of factors,” Fielding chimed in. “One unicorn I have invested in is amazing at hiring because they have created a culture. And people love working there. It’s a fintech that wins every award for company culture and that attracts incredible talent. And when you attract incredible talent, those people work really hard. It’s kind of self-perpetuating. So, I believe the metrics like impact, job creation, culture, happiness, etc. are all part of creating this unicorn.”
Will unicorns remain a key indicator of growth going forward$14
“Good companies will keep on coming out. There are companies making profit and continuing sustainable growth. But I think that the definition of unicorn is going to evolve and it’s already evolving now,” Lee responded.
Stebulaev agreed with this prediction of startup growth and added, “As I look at the young companies coming out of Silicon Valley, I think that the most interesting companies have yet to be born. If you look at the 100 largest companies in America 10 years down the road, my prediction is that at least 15 of them do not yet exist today.”
“I invest in companies that are making an impact on the world. I think that’s what we should be focused on,” Fielding pointed out. “We invest in healthcare, in the future of work, areas in which we are really excited to make an impact. If that’s your goal as a founder, rather than a milestone to become a unicorn and whatever that means, that’s a better place to be.”