Convertible Notes and Startup Funding
February 12, 2025
Financial institutions and markets are together called the financial system. This financial system is the backbone of the national economy. This is because the efficiency with which the financial system works plays a very important role in the economic development of a nation. The role of the financial system may not be apparent since we […]
In the previous article, we have already seen that accounting for sporting franchises involves certain scenarios that are specific only to the sporting industry. We saw how the accounting for player contracts was unique and why it was important to understand the accounting implications. In this article, we will continue to have a look at […]
The typical successful start-up obtains funding from various private investors at the earlier stages of the business. Now, these investors do not want to stay with the company forever. They just provide capital to help the company become a full-fledged business. Once the operations of the company are in order, the private investors generally want […]
In the previous article, we have already seen how pension funds have been adversely affected by an increasing amount of longevity risk. The increase in the average lifespan of people is definitely a positive development. However, it has an adverse impact on the financial situation of most pension funds. In order to mitigate longevity risks, […]
After the solicitation, packages are sent out, and the creditors are given all the information that they need, it is time to vote. Voting is an important part of the reorganization process. This is the part where the will of the creditors becomes known to the debtor organization and to the public in general. However, […]
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 *