The new millennium started, back in 2000, and the air of a new era blew in the halls of Wall Street. The emergence of hundreds of companies with technological DNA and the rapid proliferation of the Internet caused the New York Stock Exchange to trade above 5,000 points. Investors were expectant and enjoying the good time.
But a speculation-shaped pin pricked a financial bubble that had not stopped inflating for years. The explosion left all kinds of wounded and, on the stock market, indicators such as the NASDAQ sank to unthinkable levels. Companies from different industries closed their doors, and between 2000 and 2003, 4,854 Internet companies "sank".
Today, almost 20 years later, a new model based on a fantastic animal was consolidated with a horn of more than $ 1 billion on its forehead: the technological "unicorns" of Wall Street, which are - without a doubt - of the most sought after because they promise phenomenal returns based on disruptive solutions with global reach.
However, all that glitters is not gold. The recent debacle of the shared office firm WeWork - which was worth more than US $ 57,000 million and was sold at a bargain price, just 15% of that figure - suggests a phenomenon that turns on lights alert in the sector.
The problem is that it is not the only one that goes through a delicate moment. Global giants like Uber show that their accounting books suffer unstoppable bleeding: only between January and September of this year lost a whopping $ 8 billion. And in the last three years the accumulated bankruptcy is 20,000 million dollars.
With global expansion plans based purely on:
1. - The injection of cheap money, product of interest rates close to zero set by the Fed that remained for years
2. - An aggressive marketing tending to dethrone some entrenched habits, so that other modalities of use of goods and services emerge
3. - Thousands of exultant investors, who have been enjoying the bonanza of the global economy of the beginning of the century (which has now begun to reverse)
Thus, a large number of companies kicked the global board and imposed their leadership in record time, based on a "fuel" (hundreds and hundreds of millions of dollars obtained from investment rounds) that shows signs of never ending.
However, this type of projects with millennial profile and cool wave face the ghosts of the past and the problems of the present.
The needle is sharpened
Behind these large companies appear colossal-sized investment funds that sustain this growth despite not receiving immediate benefits. The plan is always the same: insufflate dollars on how to place, earn users and try to keep most of the cake. A sort of "gold rush" digital.
"In the world of startups, a good value proposition is sought. What usually happens is that investors do not stop to analyze each venture in depth, but instead see how to scale them and how much they are willing to lose," he says. iProUP Santiago Lorenzo, Tech & Digital Innovation Lead of the venture capital venture fund.
"When things do not work," he adds, "they realize that it is not enough just to generate something disruptive, but that project has to be monetizable." At that time, different interests of venture capital (VC) come into play.
These groups have a broad portfolio of projects and, for statistical reasons, do not expect everyone to achieve success. It works like a "timba" of entrepreneurs: some will generate return, others will achieve a healthy balance, and most will die along the way.
In addition, there is another factor. Sometimes, it is sought to "inflate" these initiatives to generate a positioning and as a strategic link between investors and companies with a profile of an incipient unicorn. "It's like paying the entrance to an exclusive club," Lorenzo slides.
"The Venture Capital as we know them, with the model of Tim Draper, were mutating with the technology industry. There is a 'no creation' of value on some projects and an ecosystem is generated that ends up destroying everything around it," says iProUP Daniel Jejcic, CEO of Avenida +.
In their vision, these companies find great difficulties in passing their breakeven (at which point the costs equal the income) and thus begin to be profitable. There is also a constant pressure from the financiers, who try to cover the holes in the balance sheet folders by injecting more and more capital.
In this process, the needle is sharpened. "There is a reality that many times the competition is to see who spends more to attract customers and the acquisition costs are measured more than revenue. Funds such as Softbank throw fortunes everywhere and they will continue to do so," adds Jejcic .
Gustavo Neffa, director of Research for Traders, points out that WeWork is one of the great exponents of this model "that can only be maintained if there is a very strong cash injection behind. And in which things work if the expansion ends up being successful, something that a priori is unknown. "
The expert clarifies that the businesses that bet on "burning money" to expand in an accelerated way - not only how the company of shared offices, but also those of the Netflix and Uber style - have relatively low barriers to entry, so that competition and Imitations are the order of the day.
It is precisely at this point that firms of this type justify their growth model based on indebtedness. Having a global presence (not at all WeWork, Uber and Netlix landed quickly in Argentina) helps at the beginning to avoid the start and growth of startups that copy their proposal.
A proven model
While the resounding examples of WeWork, Uber and even Beyond Meat, the "smart" hamburger that went public with a value per share of $ s235 and then collapsed to just over $ 80, is just a small sample to illustrate the current photo of the entrepreneurial investment ecosystem.
"Only the best-known cases are resonating, but venture capital models consider this type of situation to start. Out of 25 startups in which they bet, five will go bankrupt, 15 will have just a good result and the other five will pay the costs. of the other 20, generating returns in 7 or 8 years, "explains Nicolas Galarza, CEO and founder of the Quiena investment platform, to iProUP.
In addition, try to put cold cloths on the comparison with the 2001 bubble. "Financial crises cause actors to adjust policies and market understanding so that it does not happen again," he remarks.
However, the decline in valuations reflects the great fear and feeling of the financiers:
- Softbank shares have plummeted more than 30% since April due to poor Visionfund results, a fund that moves a whopping $ 100 billion
- The same fate was the Uber papers, which accuse a skid over 30% that led Vision Fund to accumulate losses greater than US $ 800 million
But this is not all, since other Softbank bets have also suffered strong cimbronazos:
- The popular Slack messaging app fell about 45%, just five months after its public offering in June
- Vir Biotechnology recorded a 30% decline and analyst projections show that it can go for the worse
"There are always lessons that will improve the choice of future investments. I have seen how the first bets of a venture capital usually have lower returns at the beginning because they improve their criteria. In these cases, we are talking about groups with experience," Galarza trusts.
Sustainable alternatives
In a context that marks a trend within the entrepreneurial world, a current began to emerge that seeks to put a stop to the "gold rush startup" and sit down to rethink ways to generate more organic businesses.
"What happens in the entrepreneurial world is contradictory. It is assumed that a startup starts in a germinal way and applies methodologies in which the idea is tested, it will be just there and there will be scaled. The problem is that today we go out to look for investment with a ppt, then there is no validation process, "explains the spokesperson for venturebees. Also, he thinks it is a great time to show that the model is perfectible.
"Sometimes, it's raw because there are a lot of people on the road, but these cases reveal the hardest side of the system." However, he says that "you don't have to demonize capital", but you have to know what it is going to be used for. "Many times, venture capital is buying you, not investing," he says.
In this line, the long-term commitment, with investment in technology, independence and self-management, begins to gain strength in the market.
For Jejcic, "it is a matter of knowledge and culture: the sexy and cool thing is to talk about companies that are worth billions of dollars but it is not discussed if they are sustainable." "That is why impact foci began to emerge, not so aimed at accelerated growth. We must popularize the path of profitability. For that, VCs, incubators and companies have to accompany," he adds.
While WeWork tries to survive under the new administration of Softbank and Uber seeks to balance its balance sheets, Wall Street investors remain expectant before a present that leaves several questions to answer.
