Are You an Entrepreneur Who is Chasing Fancy Terms like Unicorn or Billionaire?
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Success for start-ups is a relative term. Nowadays, fundraising and valuation have become a fad. After tasting success in the initial rounds of funding, entrepreneurs start asking, “Who do I raise funds from next?” “How can I get so-and-so VC to invest?” Unfortunately, entrepreneurs chasing the billion-dollar valuation game is a trend the start-up ecosystem should be worried about.
Rethink Your Motive
The aim of every business should be to become a long and sustaining business instead of getting carried away by fancy labels such as “unicorn,” “billionaire,” "millionnaire" etc. While these terms may come across as powerful, entrepreneurs need to ask themselves why they started a particular business in the first place?
Rishi Khosla, Co-founder of OakNorth Bank, says that the unicorn tag isn’t what that excites him. He says, “What drives me most is our achievements as a business rather than the unicorn tag. Ultimately, the valuation should be a function of the result of a business rather than a function of any potential hype.” For Khosla, what matters most is the actual business. “The fact that we got the third new banking license in the UK in 150 years is a big positive. That we made a net income of almost £34 million in the third year of operations is again a big positive.” All these things are the core drivers that make him more excited than being a unicorn.
Entrepreneurs having concerns of raising capital is understandable. In India, especially, the valuation game can become a trap owing to the fact that after raising seed or angel funding, Series A or B rounds are not hard to crack.
Consistently Positive Cash Flows
American entrepreneur and Original “shark”, Kevin Harrington points an important aspect of start-ups. He says, “One of the challenges in the start-up world, anywhere, whether in U.S or India etc is how do you make a start-up become more than a start-up that generates sales and profit?” He further added that one of the key elements that start-ups should focus on is having consistently positive cash flows. Entrepreneurs should not be overly worried about their start-ups’ valuation. If they concentrate on making their business growth-oriented and profitable, then, very naturally success and XYZ valuation will follow. Entrepreneurs must ask themselves if they are able to achieve growth rate, customer satisfaction etc at every step to avoid falling into the trap of the high-valuation game.
Deepender Goyal, Founder of Zomato, during the Entrepreneur India's cover story interview also emphasized that valuations don’t matter to him. He says, “For me, valuation is a short-term and frivolous measure of success. Valuations didn’t matter much earlier. But now it doesn’t matter at all.” If entrepreneurs focus on valuations, there may come a time when they will have to take an exit route, and this is where they must reflect if they are building businesses only to sell?
So what is the take back for start-ups? It is to grab growth with worrying about being an A, B or C worth company.