It’s ironic that the sought after unicorn is a mythical creature that is never seen. In the venture capital world, the unicorn is a startup that achieves a value of over $1 billion relatively quickly. It was once the goal for most entrepreneurs, but now the legs seem to be falling off the unicorn and a new animal is gaining presence in the market. Move over unicorns, the camel now takes prime position.
There are many positives to the camel startup. They need very little food and water (cash), can travel long distances (long runways) and traverse the world’s toughest environments (economic downturns). A great example of a camel is Zoom, which started its journey with sustainable growth and only sought equity when it was strictly necessary. Now a giant, they are a true testament to the survival of the fittest.
The world economic downturn had a major effect on startups. After the global pandemic, there was a spike in funding in 2021, but a massive reduction swiftly followed. Venture capitalists (VCs) have suddenly become tight with their spending. This does not bode well for the startups with a ‘grow and burn’ concept, netting massive losses, no sign of profitability in sight, but rather racing to go public.
This has been a culture for startups for far too long. The likes of WeWork, and Uber have a reputation of keeping raising money yet showing no sign of profitability. At its height, unicorn WeWork was valued at $47 billion. Despite investors giving billions of dollars to the company, its plan to go public in 2019 fell apart in a spectacular fashion. According to FT, the company burned through $1.4bn in the final three months of 2019, almost all the cash injection its principal backer SoftBank provided.
The rapid demise of the online-checkout startup Fast shocked many, especially those on the payroll. According to techcrunch, Fast posted a paltry six-figure revenue total in 2021, despite raising a $102 million Series B led by Stripe. The company’s burn rate was said to be as high as $10 million when it shut its doors.
Fast failed because they raised a lot of money but couldn’t get anywhere near where they should have been, they just couldn’t reach product-market fit. Revenue was nowhere near where it should have been for such a large investment.
A lot of other companies will fall off the bandwagon like this because they are burning huge amounts of money without understanding the importance of a wider, more stable approach. Rather than the gentle, mythical unicorn, a camel startup can cross the desert on little or no water, not requiring a constant stream of investment, and keep survival and profitability as their priorities.
Today, startups are considering layoffs as a way to control cash consumption and attract new capital. Cutting headcount is a quick way to ‘cut burn’ and ‘extend runway’. If cash is business oxygen, laying staff off lets a company breathe more slowly, extending its life expectancy without an infusion of external capital (air).
Ride-hailing startup Swvl just announced that it will reduce headcount by 32 percent two months after going public. According to TechCrunch, the downsizing of the Dubai-based startup adds to the long list of global cross-stage layoffs in what has been a rough month for tech employees. Over 15,000 tech workers have lost their jobs in the US alone, with companies such as Klarna, Gorillas and Bolt (the payments company) dismissing portions of their workforce, while the likes of Snap, Twitter and Instacart have slowed down hiring entirely.
Now VCs are advising that startups conserve capital, consider their hiring needs and not run into the metaphorical traffic, but rather look left and right. These points should be obvious to startup founders, but it seems only too often they are overlooked.
Valuations are now not as high and VCs are giving businesses lesser valuations. Startup founders have traditionally been told to achieve high valuations, and as quickly as possible. But this unicorn attitude of ‘venture, high valuations, grow at all cost’, simply won’t cut it in today’s market.
Changing public market valuations for tech companies and a frozen IPO market have soured private-market sentiment concerning high-growth, high-burn startups. VCs are having to revise their portfolio and reduce their spend and it’s the camels who will be at the forefront.
This shift in the market is forcing founders to think creatively and to rethink the business model that has been drummed into them for many years. In a world of uncertainty, one thing is sure, the camel is here to stay. So be a camel, not a unicorn.
Rupert Tait, co-founder of Procurified.
Follow us on
