Funding for Tech Unicorns Is Playing Harder to Get
Date: 1 August 2016 Share on Twitter Share on Facebook
The remarkable rise of tech unicorns such as Uber, Airbnb, Snapchat and Dropbox, in recent years has been one of the more defining phenomena of the current decade. These companies and others famously went from being conceived to being used by millions of people worldwide and worth billions of dollars almost within the blink of an eye.
All of which has helped to encourage huge growth and enthusiasm within tech-related digital startup sectors, with more and more of us seemingly dreaming of hitting upon the ideas behind the next great digital game-changer.
Naturally enough, large-scale investors and venture capitalist have not been far behind these trends with huge sums of money being routinely ploughed into tech innovators with apparent potential.
However, there are signs that funding for unicorns, or potential unicorns, is becoming less of a priority for contemporary investors.
The spectacular growth of some of the most successful tech unicorns of recent years initially sparked huge interest in the startup sector right around the world and for obvious reasons.
Getting in early and backing the likes of an Uber or an Airbnb is the dream scenario for any investor, with both these two companies now being backed at valuations worth tens of billions of dollars.
But for every phenomenal success in these contexts the list of failures and disappointments is virtually endless and this notion has not also gone unnoticed by institutional investors.
Some of the latest figures on tech startup investments in the US and elsewhere suggest that, while there are still vast sums being invested into potential unicorns of the future, growth in the amounts being allocated in these arenas is flattening out as compared with recent years.
Searching for safer bets
Figures compiled by Thomson Reuters and presented by PwC and the National Venture Capital Association in what they call their MoneyTree report suggest that startup investment strategies could be changing.
The report says that $12.1 billion worth of venture capital investments were made in the first quarter of 2016, with 969 deals done during that period.
However, the total number of dollars allocated to startup companies was flat during that three-month period and the total number of deals done between would-be unicorns and venture capitalists was down by 5 per cent as compared with Q1 2015.
The suggestion in some quarters is that investors are increasingly focusing their attentions away from relatively risky startups in search of greater growth potential and safer bets elsewhere.
Discerning between a startup with some potential to develop and a tech innovator with the potential to change the world and become a multi-billion dollar business is obviously not easy, even for venture capitalists.
The allure of finding the next great tech unicorn will no doubt still draw many billions of dollars to the startup sector in the US and worldwide for years to come but maybe it shouldn’t come as too much of a surprise if investors look to recalibrate their strategies as markets develop.
Current evidence would seem to suggest that many venture capitalists are indeed beginning to focus more of their attention and cash on funding the phased development of businesses already within their portfolios and which have shown a good degree of growth potential.
Clearly, companies that have already proven their business case beyond doubt will be valued accordingly and won’t therefore hold quite the same appeal to investors as they would’ve done at an earlier stage.
But for investors there does seem to be a trend now towards seeking out and supporting businesses whose ideas are at least a little more developed and proven in the real world than those of completely unknown startups who may be the next unicorn but might also amount to nothing much at all.