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Kenney, M., & Zysman, J. (2019). Unicorns, Cheshire cats, and the new dilemmas of entrepreneurial finance. Venture Capital, 21(1), 35-50.
Key insights
The US venture capital system blossomed in the 90s and reached its peak during the dot.com bubble. Initially, it was when the company Netscape went public that investors saw that the internet was “the place to be”. So, the sector grew exponentially until the year 2000 where people realized the overvaluations or flawed business models of some… Read more
Key insights
The US venture capital system blossomed in the 90s and reached its peak during the dot.com bubble. Initially, it was when the company Netscape went public that investors saw that the internet was “the place to be”. So, the sector grew exponentially until the year 2000 where people realized the overvaluations or flawed business models of some companies leading the bubble to burst and a regime change in new firm formation explained through the two next points. First, over the past 20 years, the cost and time of establishing a start-up has decreased dramatically thanks to the emergence of merchant cloud-computing offerings allows a new firm to rent server capacity. Second, the belief that many industries are ready for disruption has convinced people to invest in startups. Let’s begin with conventional venture capital firms which often play with billions of dollars. Given their size, they can no longer invest in early-stage firms, as the time commitment was no longer feasible. The market gap induced ecosystem responses. We have angel groups, accelerators, platforms for crowdfunding, sovereign wealth funds and even, Initial Coin Offerings.
Implications
The concept “growth at all costs” says that the firm’s sole task is to capture market share of incumbents from the market even if it means losing money. These firms are expected to win by absorbing operating losses during their growth phase financed by venture investment. The first problem is that short growth can create a false sense of success, as the startup may appear to be successful based on its high market share but if it is not generating sufficient revenue, it may be unsustainable for the long-term. So the company has to create a sustainable business model based on core business activities. The second implication is that companies need to develop a social impact strategy to deal with worker rights. Businesses may be encouraged to transgress social rules to stay in a winning position is everything. They treat labor as a commodity, whose cost is to be minimized rather than seen as an asset to contribute to long-term competitive advantage for the firm.
Limitations
The first one is overvaluation : the valuation of companies with the potential to obtain the term “Unicorn” are sometimes unjustified. Some of these valuations are structured to make it appear that the company worths 1 billion dollars or more when it is not the case. It is also possible that the star company crashes in mid-air, indeed it is not uncommon that unicorn companies do not bring any income in the end because they do not have a viable business model. They are short-lived species. The last limitation concerns the scope. This may be too narrow since it only concerns American Unicorn companies. There are also a lot of European unicorn companies in full expansion such as Spotify, Klarna and Revolut. Furthermore, the US creates less unicorn company than Europe. European tech start-ups are gaining more attention from investors due to their ability to generate results.
Further references
The first article discusses the impact of multiple identities on the performance of entrepreneurs who use crowdfunding. The study examines the complex financial challenges faced by startups and entrepreneurs and how their multiple identities can influence their ability to raise funds. The second article focuses on the importance of the entrepreneurial ecosystem within a company. It explores how individuals within the ecosystem must work together to contribute positively to the success of the company.
Oo, P. P., Allison, T. G., Sahaym, A., & Juasrikul, S. (2019). User entrepreneurs’ multiple identities and crowdfunding performance: Effects through product innovativeness, perceived passion, and need similarity. Journal of Business Venturing, 34(5), 105895. https://doi.org/10.1016/j.jbusvent.2018.08.005
Cunningham, J. A., Menter, M., & Wirsching, K. (2019). Entrepreneurial ecosystem governance: a principal investigator-centered governance framework. Small Business Economics, 52(2), 545–562. https://doi.org/10.1007/s11187-017-9959-2
Kenney, M., & Zysman, J. (2019). Unicorns, Cheshire cats, and the new dilemmas of entrepreneurial finance. Venture Capital, 21(1), 35-50.
Read more
Key insights
The US venture capital system blossomed in the 90s and reached its peak during the dot.com bubble. Initially, it was when the company Netscape went public that investors saw that the internet was “the place to be”. So, the sector grew exponentially until the year 2000 where people realized the overvaluations or flawed business models of some companies leading the bubble to burst and a regime change in new firm formation explained through the two next points. First, over the past 20 years, the cost and time of establishing a start-up has decreased dramatically thanks to the emergence of merchant cloud-computing offerings allows a new firm to rent server capacity. Second, the belief that many industries are ready for disruption has convinced people to invest in startups. Let’s begin with conventional venture capital firms which often play with billions of dollars. Given their size, they can no longer invest in early-stage firms, as the time commitment was no longer feasible. The market gap induced ecosystem responses. We have angel groups, accelerators, platforms for crowdfunding, sovereign wealth funds and even, Initial Coin Offerings.
Implications
The concept “growth at all costs” says that the firm’s sole task is to capture market share of incumbents from the market even if it means losing money. These firms are expected to win by absorbing operating losses during their growth phase financed by venture investment. The first problem is that short growth can create a false sense of success, as the startup may appear to be successful based on its high market share but if it is not generating sufficient revenue, it may be unsustainable for the long-term. So the company has to create a sustainable business model based on core business activities. The second implication is that companies need to develop a social impact strategy to deal with worker rights. Businesses may be encouraged to transgress social rules to stay in a winning position is everything. They treat labor as a commodity, whose cost is to be minimized rather than seen as an asset to contribute to long-term competitive advantage for the firm.
Limitations
The first one is overvaluation : the valuation of companies with the potential to obtain the term “Unicorn” are sometimes unjustified. Some of these valuations are structured to make it appear that the company worths 1 billion dollars or more when it is not the case. It is also possible that the star company crashes in mid-air, indeed it is not uncommon that unicorn companies do not bring any income in the end because they do not have a viable business model. They are short-lived species. The last limitation concerns the scope. This may be too narrow since it only concerns American Unicorn companies. There are also a lot of European unicorn companies in full expansion such as Spotify, Klarna and Revolut. Furthermore, the US creates less unicorn company than Europe. European tech start-ups are gaining more attention from investors due to their ability to generate results.
Further references
The first article discusses the impact of multiple identities on the performance of entrepreneurs who use crowdfunding. The study examines the complex financial challenges faced by startups and entrepreneurs and how their multiple identities can influence their ability to raise funds. The second article focuses on the importance of the entrepreneurial ecosystem within a company. It explores how individuals within the ecosystem must work together to contribute positively to the success of the company.
Oo, P. P., Allison, T. G., Sahaym, A., & Juasrikul, S. (2019). User entrepreneurs’ multiple identities and crowdfunding performance: Effects through product innovativeness, perceived passion, and need similarity. Journal of Business Venturing, 34(5), 105895. https://doi.org/10.1016/j.jbusvent.2018.08.005
Cunningham, J. A., Menter, M., & Wirsching, K. (2019). Entrepreneurial ecosystem governance: a principal investigator-centered governance framework. Small Business Economics, 52(2), 545–562. https://doi.org/10.1007/s11187-017-9959-2
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