The art of a good unicorn | Crypto mania and the trap of a ‘hot’ startup
The crypto industry seems to be the Wild Wild West, with more people investing in the ecosystem, despite its volatility (as seen with its massive plummet in 2022). Crypto startup founders need to pay heed to this. Reliance — particularly, RPower — has lessons.
February 2008 was abuzz with excitement for investors in India. Reliance Power was the talk of the town, collecting a record sum of ₹11,563 crores for its mega intial public offering (IPO). The topic of Reliance Power was the basis for water cooler talk, with everyone from taxi drivers to paanwalas giving their unsolicited opinions on it, promoting the idea of its IPO, and even going as far as to say that if you miss out on it, you’re an idiot.
If crypto startups are the canary in the coal mine, so be it. Because it serves as an expensive lesson for people to understand it’s not prudent to leap without not looking. (iStock)
And then it all came tumbling down. Listed with a lot of fanfare, the IPO of RPower was subscribed by more than 72 times, with bids worth more than ₹7 lakh crore. However, with the global markets being in a state of morosity and for other reasons, the Indian stock markets were badly hit. In a single day, billions of investors’ money were done for. That listing cemented the idea that the brand name just isn’t enough, you need to have some solid fundamentals. Irrational exuberance may not be able to sustain the markets. FOMO (fear of missing out) is real and it may destroy your portfolio. Bubbles tend to burst due to overvaluation and overestimation.
That’s fitting to keep in mind, considering how crypto has many of us enticed and enamoured. The Wild Wild West is what the crypto industry seems to be all about these days. The carnage is not a tiny fire in the middle of nowhere. It’s a whole rainforest being taken out, with market sentiments drastically changing amid a recession, geopolitical crises, rising inflation, uncertainty in financial markets, cyclical industries, and a pandemic. Factor in the regulatory hostility towards cryptocurrency and it doesn't get any better. Crypto enterprise Coinbase rescinded job offers and laid off more than 1,000 employees. Layoffs also happened at BlockFi, Bybit, Gemini, Vauld, Buenbit, Crypto.com, Bitso and Bitpanda, among others. That's interesting, considering how these crypto startups were once the apple of Venture Capitals’ eyes, who showered them with affection and funding.
As of June 2022, Bitcoin has fallen to about $18,000 apiece. That’s a big plummet, considering the fact that, in November 2021, it was about $66,000. That’s about a 70% fall in eight months. When the price of Bitcoin goes up, many folks start partying and it’s almost like a pyramid scheme with people bringing in more people to invest in the ecosystem. And when there’s a plummet, it’s the layperson who is left picking up the pieces.
So, what’s with people not learning from history? What’s the deal with people not fully understanding the risks and rewards and crypto startups flying too close to the sun? Because just like before, when you hear the layperson talk about the next big asset when there’s still a significant information asymmetry, you know it’s time to worry about the next bubble building. But was the excitement built to soar?
Some believe crypto startups may not be able to survive such a substantial downturn. The crypto winters of yore were much smaller, but this new one came after a time when crypto was made in a much more mainstream place, even having celebs like Matthew Damon, Lawrence David, Kim Kardashian, LeBron James, and Tom Brady endorsing the digital asset. That means it would be much harder for crypto startups to rise like a phoenix and this crypto winter may just be a crypto ice age: Collision course.
And yet, not everyone is so pessimistic. You still have the cognoscenti say, “It’s just a phase”, as if to excuse the histrionics of a belligerent teenager. According to them, oscillating between penury and exuberance is the way of the world for crypto and it’s only going to propel innovation during this bear market, instead of all-out annihilation. Experts draw a comparison to the dot-com bubble to say that this Web 3.0 crisis will only reveal who the champion startups are, the way Amazon and eBay rose to the top, even after the crisis of the 2000s. All in all, the FUD (fear, uncertainty, and doubt) is high right now, just like the “josh”.
Whether the market can correct itself for crypto startups to continue to succeed is something that can only be speculated. Some are outright rejecting that idea, some believe a major revolution could be born out of this and this is just a bump in the road. It’s a good time for those fledglings with more solid ground to stand on to figure out whether they can be resilient and antifragile and whether they can withstand harsh realities to evolve. The rest may be poised to slowly disintegrate if they don’t have a leg to stand on and if they can’t fulfill their promises.
If crypto startups are the canary in the coal mine, so be it. Because it serves as an expensive lesson for people to understand it’s not prudent to leap without not looking. The “hot startup”, on its own, is quite superficial. It needs more substance to back it up. They’re essentially sirens, just like in Greek mythology, and that ought to make your sirens go off.
Today, one sector is hot and suddenly, it's a has-been. So crypto startup founders need to better understand what kind of company they can build and if it doesn't follow the trajectory they expected it to, whether it can still sustain and thrive, not just survive. Ask yourself what the fundamentals of your company are and what can it withstand. Dip your toe in the pool, see if it’s to your liking and make sure you know all the facts and that you know what you’re getting into. Only then, you are ready to make a splash.
Shrija Agrawal is a business journalist who has covered startups and private capital markets before it was considered cool in India
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