ETtech Review: Let’s Redefine Unicorns

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In the lives of techies and startup founders, “hacking” is a respected term, meaning punching above your weight. Growth hacking is a basic operating principle for early-stage startups. This has now given way to the “fundraising hack” in which you raise venture capital funds well beyond the current stage of your startup.

In principle, this is a positive point, because quick access to serious money can be a big advantage in a competitive market. It’s a different matter when fund hacking becomes the only goal, however. Welcome to unicorn culture.

If you are a founder, you have your own circle of support for strategic or even day-to-day issues. Given how daunting fundraising can be, it’s obvious that you admire those who have “cracked” it.

Your greatest respect goes to those who have raised huge fundraising rounds without visible and commensurate business progress, because these guys must be the smartest when it comes to fundraising hacks. These founders have taken side exits, are living the good life, and are also willing to invest in your business, just to “give back.”

They regularly feature in unicorn lists. The media, government and society can’t help but praise it. You can’t wait to be like them. You want to be among the fastest to get on those unicorn lists.

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I asked a group of founders why they didn’t see the founders of companies like Zerodha, Zoho, or even Nykaa as role models. They said, “Once we raise venture capital funds, we play a different game and we need role models who play our game.”

I really can’t argue with a sincere entrepreneur’s aspiration to be at the top of their game. So it becomes a multiplayer game where the founders compete for the next check of $20 or $100 million, and the goal is to raise the biggest sums.

Founders from all sectors of startups play this “unicorn game”, even though their activities may be very different. Players generally don’t care about other people’s business models, but the respect for fundraising chops is real and high. There are a few exceptions to this, but they don’t affect the general zeal for the game.

As the game has moved away from business building, the toxic implications are multiplying. To hack a fundraiser, you first need to hack some numbers – usually anything but actual earnings. The board authorizes a huge budget for this, knowing full well that it will lead to a lot of leaks. To spend these budgets, you think you need mercenaries. Your recruiting arguments, for example, resemble those of ISIS – money, plunder, heavenly pleasures.

You hire celebrities for your brand campaigns not because your product is ready to scale, but because that’s the game. India doesn’t have enough celebrities for the unicorns it produces. A few founders or employees caught in the cookie jar are just a symptom of this toxicity.

While most older generation VCs have seen enough cycles to be skeptical of what’s going on, there’s now a new generation of investors who are very happy to play along – with founders and partners – from hacking money from global investors.

The measure of the performance of a venture capital fund is the multiple of the market value on the invested capital. As founders hack their fundraising, that number for VCs also increases. The alignment is complete and symbiotic, but only short-term. Investors and founders, unaware of the cycles unfolding, think they are doing just fine and defend the game vehemently. They blame the toxicity symptoms on a few bad actors, not the “unicorn game” itself.

Given that we have so many unicorns, the term doesn’t seem so mythical anyway, and Founders may actually enjoy a greater challenge. You can get lost on a list that is now approaching 100 members. A new shorter list would be more ambitious.

What if we redefine the term “unicorn” to mean a market-leading, rapidly growing company with very healthy net margins and revenue of at least $50 million (SaaS companies), $100 million dollars (D2C companies) or 300 million dollars (marketplaces)?

The author is a co-founder of India Quotient, a seed investment fund.

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