Startup Shakeup? Goldman Chief Sees Reality Check for Silicon Valley's Unicorns
The all-star startups over the past few years in Silicon Valley were all about growing as big and as fast as possible. That mindset bred a crop of young private companies so heavily funded, their valuations surpassed those of many long-established blue chip firms.
Now those billion dollar "unicorn" startups are facing increasingly wary investors, as attitudes shift and bloated valuations start to collapse. Although -- or perhaps because -- there are now 229 of them according to VentureBeat, it seems the unicorn is an endangered species.
That's a perspective shared by Goldman Sachs COO and President Gary Cohn, according to Business Insider, but his take on the situation is far from panic, as other VCs have pictured it. He said he sees the change in the investment climate as something of a necessary attitude correction, tempering the over-exuberance of recent years. The new mindset, which he described as taking over Silicon Valley in the past few months, is about reasonable expectations for reasonable investments.
"Historically in the Valley, the mantra has been: Grow at any cost. Get bigger, get bigger, get bigger," Cohn said.
While some are predicting that, for example, 90 percent of unicorns will be repriced or perish and only 10 percent will make it, Cohn said general pessimism is a natural evolution that occurs in any industry.
"The mantra has gone to: Cash flow, let's be profitable, let's make sure we are earning money and we've got a very sustainable business model," he added. "And it's actually a positive thing."
Cohn's somewhat optimistic view is backed up by a new study by Silicon Valley law firm Fenwick and West (via GeekWire), which found that financing and valuations for unicorns dropped after the first quarter of 2015. But by the end of the year, the startups close to the borderline $1 billion unicorn level began offering looser terms with easier exit agreements, so as not to lose investors, or that coveted status.
It's likely some of those "unicorns in name only" will be culled or at least clipped in the new startup investing climate Cohn described, but that doesn't mean big-time Silicon Valley startups are going bust in general.
Cohn said he believes the fundamentally solid unicorns, like any well-built enterprise, are still great investing opportunities. And the cooling effect might nudge some toward focusing on basic principles again, correcting the tunnel vision some might have on that $1 billion mark.
"I think what this is going to do is it's going to force companies to think more and more about bottom line and revenue creation and profitability than growth, growth, growth," Cohn added.
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