Startup companies with big ideas, particularly those relating to biotech and healthcare which stand to make significant financial gains in enormously profitable industries, are often valued highly, in the billions, before they ever actually turn a profit. That might be about to change.
In a survey of more than 900 representatives of life sciences and technology startups from the U.S., U.K. and China, Silicon Valley Bank reports seeing a shift in the entrepreneurial landscape that might require up and coming companies to show they're worth their salt before investors rally behind them so readily.
"Entrepreneurs we speak with, while remaining naturally optimistic, are adopting a new attitude: be prepared," wrote Silicon Valley Bank CEO Greg Becker in a statement accompanying the firm's Startup Outlook 2016 report. They are pulling the reins tighter on operations and retooling strategies. They are anticipating a more balanced funding environment… In 2016, access to capital will get harder."
Oftentimes, young companies who hope to nab investors and headlines will focus on growth above all else, including profitably, a strategy that burns through the early-earned capital that funds expanding a staff or brand before a startup is actually generating enough revenue to replenish it's bank.
"Companies are instead saying, 'let's lower our burn rate, hit our milestones, and focus on our business,'" Mr. Becker told Wired. Entrepreneurs helming young companies are also continuing to look at merging or being acquired as a viable exit strategy. Startups may be taking the hint from major companies, such as Yahoo, who have reported losses and laid off significant portions of their employee base.
It may be that unicorn companies like Oscar Health, Zenefits and Theranos, which have all run into troubles, from profitability worries to legal and ethical complications, are setting an example for newcomers that a growth-at-all-costs strategy isn't the right attitude for all startups.