The startup world eventually came back stronger, but history has a way of repeating itself. Venture-backed startups are now being plucked off on the cheap by private equity firms, and Silicon Valley Bank, once a stalwart of the venture funding fantasy, has collapsed in spectacular fashion.
Now more than ever, job seekers should be looking for healthy business basics when evaluating their next employment opportunities and beware of shimmering unicorns. Here’s why.
1. Only 1% of startups become unicorns
Betting your future on a unicorn opportunity is innately risky. According to CB Insights, only 1% of startups achieve the billion-dollar valuation that constitutes “unicorn” status. So the odds are 99:1 against you, and it’s extremely difficult to evaluate all the strategic elements that give a company the winning edge while you’re interviewing for a job.
Having a CEO who played a role in a unicorn once before doesn’t mean it’ll happen again. New startups touting former Google, former Apple and former PayPal executives aren’t necessarily more likely to achieve Google- or Apple-like growth in today’s market. The tech world has changed. Investors and consumers are more sophisticated, there’s more competition than ever, and it’s no longer that easy to deliver PayPal-like innovation in the 2020s.
2. Startup growth rates have slowed
Twenty years of success stories have generated an atmosphere of survivorship bias, convincing us that if we emulate the qualities of those who succeeded, we will achieve the results they achieved. In reality, the changing market conditions, technological baselines and buyer expectations have made the growth rates of prior decades more difficult to achieve.
The old, back-of-the-napkin math of the unicorn world held that companies growing 100% per year to an annual revenue of $100M could sell for a 10X multiple: the unicorn.
It was a repeatable formula long enough that most people in the Software-as-a-Service (SaaS) world believed it to be achievable for their companies. I myself led teams in one such company, growing from $15M target earnings when I joined to more than $85M in just a few years.
But during that time, growth rates across the industry began to slow. Now, the reality is that almost nobody is seeing the kinds of revenue retention and new-business metrics that gave rise to so many unicorn exits over the last decade. If unicorns were generally rare over the last decade, they’re likely to be even rarer now.