Wake up and smell the coffee valuation: Why startups need to buckle up, hunker down

Wake up and smell the coffee valuation: Why startups need to buckle up, hunker down
Masayoshi Son, founder of SoftBank, has lent his voice to a chorus of venture capitalists about a long funding winter for startups. The party of 2021, which produced more unicorns than the sum of the previous five years, looks like it’s well and truly over.
SoftBank reported its biggest quarterly loss in April-June and trimmed its investments to $600 million from $20.6 billion during the same period a year ago. A hardening market for credit worldwide is pushing private investors to reassess risks as appetite for market listing abates.
Startup valuations before raising new capital from investors have fallen from the previous three months, and there is a rising trend of companies taking a down round, valuing them lower than in previous ones. Founders who are unwilling to accept this new reality could be headed for an extended dry spell, according to Son.
A funding drought ought to nudge startups to tweak their strategy where hyperscaling yields ground to sustainable business models as investors seek a clearer path to profitability. Companies will have to conceive, design and build products that have the ability to endure downturns by providing abiding value to customers. And this has to be accomplished efficiently, without blowing up big budgets.
A churn in the talent pool during a phase of turmoil allows companies to improve hiring outcomes at not much greater cost. The crisis also serves up an opportunity to invest in innovation that then becomes a true differentiator and provides investors a vision to buy into. Marketing and client management, too, should occupy more of startup management bandwidth.
These are all regular prescriptions that acquire intensity as the environment deteriorates. Principally, though, startup founders will have to realise that they are governed by a uniform set of business rules. Those rules do not allow stratospheric, headline-grabbing valuations for extended periods. The era of easy money is over. Investors have woken up and are smelling the coffee. It is time startup founders do the same.

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