The art of a good unicorn | Startup founders, it's time to build an ‘immunicorn’
In an environment of precarity, we must take our tinted glasses off and shift our obsession from unicorns to building an “immunicorn”. Here's what that implies:
The party was in full swing, until the cops came knocking and broke up the celebration. Remember the good old days of… 2021? Unfortunately, our unicorn obsession seems to have hit a snag. Congratulations to us, as we had our 100th Indian startup receiving unicorn status (hitting a valuation of at least a billion dollars), as of May 2022. However, the mood seems to have turned sombre now. Before, startups were getting hot investments, meting out sky-high valuations and giving back fat returns. Well, 2022 decided to put up a massive speed bump. The swelling of price tags has come down. The ice palace has defrosted.
Are you, as a founder, in here for the long game or just looking for a quick way to become a unicorn with paper valuations? Yes, it’s a downturn, but make the best out of the test for resilience. (Shutterstock)
There’s a general sense of malaise now, funding has slowed down significantly, recession and inflation are looming, monetary and fiscal policy tools made capital costlier and geopolitical crises and a pandemic have also changed the face of startup funding. Further, startups have to deal with capital constraints, layoffs and cutbacks. In just May 2022, unicorns Cars24 and Vedantu fired about 1,200 employees and Ola laid off 2,100 employees from its dark stores. Other startups that have let go in significant numbers are Unacademy, Meesho, Furlenco, mFine, and WhiteHat Jr.
And you will hear many experts say that the recession is a great time to build a startup and that a VC (venture capitalist) friend of yours will nudge you and remark frugality is back in vogue, just like chokers and bell-bottom jeans. Or someone would walk in and preface what they’re saying with “Econ 101” to tell you cash is key and burning cash is a foolish strategy to build anything sustainable.
What’s happening in 2022 is not exactly unprecedented. There have been downturns before. Is there a map? There may be common warning signals amid all the noise, which compromises one’s sanity and makes one fearful and nervous. In the US, there were Fed rate hikes and speculative asset bubbles, something you could find common with past cycles. ETF outflows and supply chain disruptions are novel with this downturn, but either way, in all cases, business activity gets culled and valuation downturns upend the status quo for the worse.
The pendulum swings too far too often from the centre in both directions, almost without exception. There’s reason to be circumspect, given the environment, but some believe it could just be overreacting, because the “new normal” was “never normal”. Because cycles will continue to happen and an environment that has the illusion of a bubble has a cycle set to happen. Valuations were snowballing down a slope. Until global warming melts the snow, that is.
In the seminal book for startup founders, The Hard Thing About Hard Things, Ben Horowitz and Marc Andreessen, co-founders of Andreessen Horowitz, were raising money for their startup in the early 2000s. Author Horowitz was asked by Andreessen about how the business would be run if capital were free. The author remarks that asking an entrepreneur a dangerous question like that is like asking an obese person what they would do if ice cream had the same nutritional value as broccoli. Decades later, the dangers of such thinking are still not emphasized enough with tech mitigating startup costs, while capital and talent get bigger. Wanting a unicorn in its portfolio, a VC may inject a whole lot of money into a business with unproven potential and lose big time.
There’s a struggle that makes startup founders sweat. It’s when you thought you could get away with the “fake it till you make it” attitude. It’s when you see heavily funded unicorns lay off in droves and you start to wonder about the fate of your startup. It’s when you stop looking at dates on your calendar, so that you don’t have to learn how many months of cash burn you have left.
Cycles are bound to happen especially when we are coming off the excesses. In such an environment, what does one build, we take our tinted glasses off and shift our obsession from unicorns to building something that we’re calling an “immunicorn”.
What’s the playbook of such a startup?
1) Making sure cash is the ultimate ruler.
2) Being agile, especially in a crisis, so that you have value propositions, no matter the obstacle.
3) Not building on the vagaries of VC mood swings. It’s about making sure that cash would be the ultimate king.
Are you, as a founder, in here for the long game or just looking for a quick way to become a unicorn with paper valuations? Yes, it’s a downturn, but make the best out of the test for resilience. Here lie business disruptions and radical transformations and that means ideas and opportunities for antifragile entrepreneurs. Here is where your conviction will be tested. Here is what could make you an immunicorn.
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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