WOW – the word out of the Valley and other hotspots regarding valuation and early stage financing. For instance, Techcrunch has a brief article on the ‘unicorn’ valuations. Is this The Sign of Success for Entrepreneurs?
NOPE – Peter Drucker and Ted Levitt always stated that the purpose of a business was to ‘create a customer’. In my mind, that is the starting point for signifying entrepreneurial success. Simply obtaining financing at a high valuation is a step in that process. What really matters? Building an a long-lasting organization that: 1) creates enriching jobs for employees, 2) Creates long-term value for shareholders, and 3) is a good community citizen.
The stories of obtaining financing (this CD has played before, btw – 1980s, 1990s, early 2000s) at huge valuations are typically good for a small group – the early stage investors who are able to see a step up in their investment value at later stages and hopefully an exit that produces a nice return for limited partners or other investors. But, what about the three points above – does it help create a long-term, sustainable, successful organization? The stories of the huge valuations are misleading in that so few startups or early stage firms are candidates for that type of financing.
It’s my hope that in the long haul, especially from an educational standpoint, that we don’t gear all things toward the quick-fix, high valuation approach. For one, these things occur in cycles and once a bubble bursts, there is a lot carnage and unhappy people. Many solid companies came out of the busts from before and learned how to run themselves without hundreds of millions of dollars in financing.