Unicorns are bewitching entities. They make you either question your eyes or dig deeper into your wallet, not to mention that only the ones actively seeking such a business can spot one too. This kind of chase not only takes a long time and lots of resources but sometimes it isn’t even worth all the hype. We will take a look at some specific things that investors struggle with while choosing their unicorns, but first: who chases miracles?
Who invests in unicorns?
Besides founders and employees, the rest of the population has limited access to such businesses, the entry-condition being wealth. That is why the main supporters of unicorns are Venture Capital investors, Private Equity funds or those willing to act as angel investors.
Furthermore, one of the hottest scenes where you can seize an extra chance for seed investments these days is Y Combinator. Generally speaking, startup accelerators and business incubators are a great place to check out the market, gather knowledge from mentors and meet potential investors. They open up a world of possibilities for those just starting out and offer different perspectives for those that already have the ace up their sleeve.
What do investors struggle with while hunting for unicorns?
- At times, there can be a lot of available capital floating around and few opportunities to cultivate it. Usually, a unicorn that proves to be the winning card, finds itself supported by hungry VC funds or other types of investors waiting to get a bite, pretty quickly. That being said, investors struggle with securing pieces of such businesses quite frequently. If they are not early at the table, they might not get a seat at all.
- A clear-cut business model is very important for the success of any company. At the same time, that is one of the first things a potential financial partner would want to analyze. Investors need to know and feel that their money is safe and spent on a business worth the risk, or they will not sign the deal. It is very obvious, actually. Few people would bet a large sum of money on something that they have no insurance on. Therefore, make sure that your business plan includes everything: executive summary, an outline of the products and services you offer, a budget and some future projections, etc.
- Entrepreneurs tend to overvalue their businesses and that is the main risk an investor takes when choosing a unicorn to put money into. On one hand, this overvaluation shows the owner’s confidence in the potential of his company’s product, but at the same time it brings financial trouble for investors, as competitive pressure from public markets falls onto them. In cases like those, the IPO price is left far behind, stock prices begin to drastically drop and sometimes that means imminent doom.
The impact of the Covid-19 pandemic
We cannot ignore the circumstances that forced investors to work under a lot of pressure during the last 2 years. Among the challenges they face are: drastic drops in stock prices, imprecise business valuations, founders demanding them to take more risks than they themselves are willing to, small-mindedness of some entrepreneurs, making important investment decisions with no idea about what the future holds and many more. The future looks gloomy as the pandemic doesn’t seem to have in mind waving the white flag, so the obstacles that are in store for the business world remain to be seen.
Luckily for knowledge seekers, some resources come to mind:
Unicorn tears by Jamie Pride
The Unicorn’s Shadow by Ethan Mollick
Unlocking unicorns by Michael Bervell
12 Months to $1 million by Ryan Daniel Moran
The Money Game podcast by Mentori de Romania
Juggler of words and wizard of controversial ideas, I am here to share with you the world of investors as it is and as it could be.
Putting together my B.A. in foreign languages, M.A. in international development and all the knowledge acquired through Mentori de Romania, I am here to show you that holding a pen – or in this case, typing on a keyboard – clicks with me best.
Juggler of words and wizard of controversial ideas, I am here to share with you the world of investors as it is and as it could be. Putting together my B.A. in foreign languages, M.A. in international development and all the knowledge acquired through Mentori de Romania, I am here to show you that holding a pen – or in this case, typing on a keyboard – clicks with me best.