The spectacular failure of WeWork’s IPO in 2019 has offered several lessons to tech startups that continue to covet “unicorn” status — startups with a valuation of more than $1 billion.
SoftBank Group, through its Vision Fund, lost a staggering $4.5 billion.
This left a bitter taste among investors who are now increasingly looking under the hood for signs of trouble with the startups they are considering for investment.
Investors are now focusing on profitability rather than revenue growth and the founder’s vision, according to Lyft CEO Logan Green.
“There has been a major shift from investors valuing growth to going to value stocks. That shift has had very broad implications that have impacted us,” Green told the Wall Street Journal.
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Focus has also shifted from optics towards unit economics. Metrics such as gross margins have taken center stage over spending heavily on overheads in pursuit of high growth, according to Airbnb CEO Brian Chesky.
Investors are looking beyond the tech disruption and into the old-fashioned real fundamentals of the industry being disrupted.
In the case of WeWork, while they used technology in their operations, the heartbeat of the business was commercial real estate, which does not deliver a very high margin.
The WeWork debacle may have marked the end of easy-money financing for tech startups, according to a column in The Wall Street Journal by James Mackintosh.