Convertible Notes and Startup Funding
February 12, 2025
Uber is already a well-known brand across the world. Technically, the company is still a startup. However, Uber has a valuation of close to $70 billion. Also, the company is planning for an aggressive IPO. It is estimated that Uber’s post IPO valuation will be close to $120 billion. This is phenomenal given the fact […]
Securitization is now becoming an integral part of the way in which international sporting franchises finance themselves. There is no doubt about the fact that securitization is on the rise in the sporting industry in almost every part of the world. This can be easily verified with statistics. However, it needs to be understood that […]
The financial community of the world is at a consensus that the current economic system provides the United States government with exorbitant privileges. This means that the system does not treat all countries equally. Rather it provides an unfair advantage to the United States because the dollar is the reserve currency of the world. The […]
In the previous article, we have already studied how commercial banks help in providing point-of-sale services to their corporate customers. We have also studied how point-of-sale systems have become strategically important for corporations. However, they are some pain points in the point-of-service system as well. Commercial banks provide another service called next-day funding in order […]
In the previous article, we explained the concept of cost overrun. We also explained how cost overruns have a negative effect on the finances of the entire project. However, it is strange that despite being so harmful to infrastructure projects, cost overruns are still ubiquitous. It is common for more than 50% of megaprojects to […]
Startup companies typically have a high failure rate. It is said that 90% of all startup companies fail. The percentage of companies failing keeps on reducing as the company grows and obtains more funding.
Ideally, when a company becomes a unicorn i.e. achieves a valuation of $1 billion, then there shouldn’t be any chances of failure. However, surprisingly even unicorn companies fail. Many times, they end up causing a lot of damage to the investor’s funds as well. Hence, it is important for investors to understand the reason why unicorn companies fail.
It is important to understand the common reasons behind the failure of unicorns in order to be able to predict these failures.
Companies often try to convince investors that they will achieve dramatic growth in a very short span of time. It is not uncommon for unicorns to claim that they will grow the company at the rate of 15% per week. This immense speed comes at a cost. Often this leads to large-scale mismanagement in the company. Of course, scalability is an important aspect of the business model of startups. However, there should be reasonable assumptions, or else the growth process can turn into an operational disaster.
Public investors tend to focus on value which is found in the financial statements. On the other hand, private investors tend to focus more on the future. They believe more in the dreams being sold about the potential that the company has to change the world. Startup companies need to go public only after the transition is complete. If the company is not able to justify its valuation based on the numbers in the financial statement, then its stocks will be pounded in the open markets.
It is common for unicorns to list on the stock exchanges. However, some of them succeed whereas the others fail. Investors need to look out for some of the symptoms which are an indicator that a startup might fail.
The fact of the matter is that all types of companies are prone to failure and unicorns are no exceptions. Investors must be aware that sometimes the hype surrounding a unicorn can turn out to be just hype that is not backed by any substance.
Your email address will not be published. Required fields are marked *