VC ‘mega-rounds’ are creating more unicorns, but they face a long path to profits
From 2007 to 2014, the number of $100m funding rounds ranged from 0 to 4 per month. Now, in an age where venture capital flows more freely than Soylent, startups raised a record 55 ‘mega-rounds’ just last month.
But when startups focus on fundraising, international expansion, and never-ending hiring instead of stable business models, they risk becoming money-losing machines that struggle to turn a profit.
Stampede of the unicorns
As funding increases, so do valuations. Just 80 startups were valued at $1B in 2015, but last year that number more than tripled to 258.
Why is this happening? Basically, VCs raised the bar for funding. Just a few years ago, a $10m funding round was big. Today, big venture funds like SoftBank’s Vision Fund won’t even invest less than $100m.
Since companies need funding to stay competitive, they are pressured to take large funding rounds and constantly expand. Often, this pushes companies into debt as they pursue growth at any cost.
Why is this a problem?
Once a startup is caught in a cycle of growth-fueled debt, it will often continue to stay private in order to continue growing, requiring more and more funding and postponing profit.
Two decades ago, when companies were expected to make money to survive, this cycle wasn’t common. After raising just $36.1m, Google turned a profit in 3 years (and went public in 6).
But today, companies routinely stay private for more than a decade as they try to grow. Uber is an example of the vices of VC: It’s raised $21.7B and hasn’t made a profit (or gone public) after 9 years.
A future of fast funding and slow profits
When the VC bubble first started minting unicorns en masse, VC analyst Bill Gurley proclaimed “all these private valuations are fake… it’s all a myth,” echoing a common sentiment that a “correction” would soon reduce the valuations of VC-backed startups.
But, that market correction has failed to materialize, and now, even Bill Gurley believes in unicorns. “You have to adjust to the reality and play the game on the field,” he recently toldTheNew York Times.
Funding is believing
BREAKING: Bootstrapped MVMT sells for $100m
After all that talk of mega-funding, a palate cleanser — 5-year-old millennial watch startup, MVMT, just sold to Movado Group for $100m without raising a cent of VC cash.
The 40-person team, led by co-founders Jake Kassan (27) and Kramer LaPlante (26), stands to walk with the purchase price, plus up to another $100m based on the company’s future performance.
Which, given, MVMT’s track record, is great news. In just a few years, they’ve managed to expand to over 160 countries, and pulled in $71m in revenue in 2017.
Disclosure: MVMT is an advertiser with The Hustle. This story is not sponsored.
A startup called ROOM fights open-office layouts with new portable office spaces
A study by Harvard Business School found that open offices actually lead to a 72% drop in face-to-face interaction between employees, thus upping email use and lowering productivity.
AKA, the antithesis of what open-office layouts were designed for.
Now, Techcrunch reports a new startup called ROOM has joined the anti-open-office movement by building “rooms” -- prefabricated, and “easy” to assemble -- right over the top of your open-office concept.
Let the revolution begin
Today, close to 70% of all US offices are “open concept” -- meaning no cubicles, no partitions, and no private officex for people to get some dang peace and quiet.
That’s where ROOM’s room comes in. The ROOM One is a $3.5k soundproof booth, scientifically constructed with power outlets and ventilation, so none of those heated sales calls fog up the glass.
And they aren’t the only ones joining the fight: In January, Wall Box announced their fish-bowl product of the same concept, as well as companies like TalkBox and Zenbooth (all reportedly more expensive than ROOM).
And people are buying...
It’s easy to look at these privacy chambers and giggle, but the concept could actually save businesses a ton of money on lost productivity, and be flexible enough for fast-growing companies.
Now, it looks as if companies are finally listening to the more than 60% of open-office employees who are tired of the chaos. Since launching less than a year ago, ROOM has already locked in close to 200 clients, including Salesforce, Nike, NASA, and JP Morgan, and a $10m revenue run rate.
Saint Louis University puts an Echo in every dorm room
Digital Trends reports that Saint Louis University (SLU) is going to put an Amazon Echo Dot in every dorm room on campus -- more than 2.3k Amazon smart speakers.
“Mom, can my friend Alexa come home with me over break?”
With more than 13k students enrolled in the private Catholic university, the initiative is reportedly “unprecedented” in size, and came together over the course of 3 months last spring term.
The university’s IT department has developed an SLU-specific Alexa skill to answer more than 100 common student questions about sports, concerts, speakers on campus, student events, organizations, probably keggers… you know, the basics…
Tapping into the youth market via education is a familiar strategy: Google’s low-cost, high-durability Chromebooks dominate the education space, accounting for more than half of the mobile devices shipped to schools, and Apple’s playing catch-up with their own iPad for students.
Twitch takes aim at YouTube by offering celebrity creators millions
When it comes to online video, YouTube is still the king of content, but rival Twitch is attempting to steal the crown by offering millions to lure celebrity streamers away from the ’Tube.
Twitch has ambitious plans to scale its advertising business by broadening its streaming audience beyond gamers and offering content creators multiple ways to monetize.
Going beyond gamers
Amazon acquired Twitch back in 2014 when it was almost exclusively a platform for gamers. But, recognizing the advertising limitations of the gaming demographic, Amazon launched Twitch Creative a year later to broaden its streaming horizons.
Then, to attract new viewers with popular celebrities, Twitch began a campaign to recruit celebrities, offering minimum guarantees of “a few million dollars a year in revenue” to personalities from Will Smith to Christine, a 32-year-old amateur baker who now hosts CookingForNoobs.
An upstream battle
As of June, Twitch had just 11m viewers across all of its channels compared to YouTube’s 139m, but that hasn’t stopped Twitch’s CEO from setting a goal of $1B in ad sales.
In addition to offering generous sums of money upfront to lure creators, Twitch offers a partner program that lets creators share in ad revenue and offers up to 5% referral commission for anything sold from the stream.
Meanwhile, as YouTube invests money in new music services and studio-produced TV, many amateur creators are feeling squeezed out of the ’Tube -- making Twitch’s commissions look even better.
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