As Matthew Zeitlin of the Guardian noted, “the company [Wework] is essentially renting long and subleasing short, leaving itself exposed to the same risk as financial institutions that fund themselves with short-term borrowing while maintaining long-term funding commitments.”
Life is what happens whilst you’re busy making other plans … https://t.co/ublsFlCT0A
— Chris Skinner (@Chris_Skinner) April 6, 2020
So it was strange of SoftBank’s management to not have intervened in WeWork earlier last year owing to the bond inversion registered last August (a clear sign that when it did file for IPO, because it did so in August, someone somewhere may have been trying to take mom and pop investors’ lunch before the table was cleared…words fail). As most financiers are aware, a bond inversion usually predicts a recession to hit after around 300 days.
Anyone reading this will probably agree that we are indeed under the dark clouds of a recession. And because today is National Unicorn Day, we thought we would take a look at other startups and what the future lies in store for them.
Although there are some glints of light such as neat closing an $11 million funding round yesterday, it isn’t looking pretty overall. Here’s Kabbage furloughing;
Fintech Unicorn Kabbage Furloughs ‘Significant’ Amount of Employees
— Atlanta Inno (@AtlantaInno) April 5, 2020
This comes as venture capitalists (VCs) have been pulling term sheets, slashing valuations, and renegotiating startup deals as reported by Business Insider.
Some posit the full collapse in the fintech unicorn scene as economic growth goes from a trickle into deeply negative territory. Even the EU has blamed coronavirus for not being able to do a deal on Brexit.
— Citadel Advantage (@StanleyEpstein) April 7, 2020
But one area that investors are looking at is the cryptosphere. As DisruptionBanking noted last month, Bitcoin’s halvening is likely to spur further interest in the sector.
— Chris Gledhill (@cgledhill) April 8, 2020
The underlying issue with the typical Silicon Valley-based ‘unicorn’ is that of growth at the cost of all else, including profitability. And 2020 is not the time in the business cycle to be looking for growth without justifying costs to investors.
It is the time for frugality, something that WeWork and SoftBank seem to know less about. In a thought-provoking piece, Entrepreneur posits that startups should aim to be ‘camels‘ that are sustainable in the long run.
DisruptionBanking strongly agrees.
And whilst those financial goals should be balanced by startups looking to make a difference as gracefully as this fintech is, sustainability is the name of the game.
Dr. Qasim is using BABB to raise funds to purchase personal protective equipment for NHS doctors, nurses and clinical staff.
— BABB – Make a Difference 🙌🏼 (@getbabb) April 8, 2020
Uber made a claim a few months ago that it seeks to be profitable (hint, long term buy) by 2021 but the economic disruption is calling that into question, as noted by Seeking Alpha.
sifted analyzed last month that “Fintech unicorns could see $76bn wiped off their valuations” but the models need to be regularly updated as the disruptions keep rolling in at record paces.
And as business models and entire economies themselves have to be rearranged, management needs to have their thinking cap on or face losing unicorn status.
Victory comes from finding opportunities in problems. – Sun Tzu
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