Forbes's Steve Bertoni on the far right with John Collison, Vivek Ramaswamy, Austin McChord, and... [+]
A decade after the dotcom bubble, things are getting ridiculous in Silicon Valley again. With the media consistently asking if multi-billion dollar valuations are the latest sign of a bubble and nerd culture becoming mainstream—look at shows like Silicon Valley or the latest Steve Jobs film—a group of tech startup superstars including founders and VCs gathered at the Forbes Under 30 Summit and tried to debunk the myths surrounding their industry.
In a panel moderated by Forbes’ Steve Bertoni on Monday, three founders of so-called unicorns—companies that see their private valuation top $1 billion—and one major venture capitalist called BS on the idea that a ten digit valuation is a good measure of success in Silicon Valley.
“It’s the new vanity metric,” explained Josh Kopelman, a partner at First Round Capital with hundreds of millions of dollars in exits under his belt, “valuations are an outcome, not something you optimize.” Kopelman was joined on stage by John Collison, cofounder of Stripe, an online payments platform recently valued at $5 billion, who echoed his sentiment. The term unicorn, which he admitted to hating, helps mischaracterize companies, judging them by their capacity to fundraise rather than building long-term value. Collision spoke of a “valuation race” that is self-perpetuating and not only an illusion externally, but also dangerous internally as it creates feelings of hubris that can lead to losing focus.
While the outside world appears obsessed with Silicon Valley and college students yearn to become immediate billionaires building mobile apps, Axovant founder and CEO Vivek Ramaswamy, who at 29 led the biggest U.S. biotech IPO ever (his company raised $315 million at a $1.4 billion valuation), went to the core of the issue: there’s a “social bubble” with joining a Silicon Valley startup or building one’s own business.
Asked by Bertoni if the tech world was glamorized these days, Datto’s Austin McChord—who turned down a $100 million buyout offer from a security firm in 2013 and now has annual revenues topping that figure—had no doubts. “This job is hard and it doesn’t get any easier,” he noted, explaining that “if you don’t keep learning and get better, you drown.” The risks become even higher as a company scales, forcing an ever-growing workforce to learn new tricks to maintain momentum.
All of the panelists seemed to agree: when your startup becomes a big company, it’s incredibly hard to remain focused and nimble. The Siren Call of raising the valuation of your company, and therefore inflating your bank account, pushes some to scaling too early or rushing out products. The comfort of having money in the bank after a successful round eliminates the incentive to remain “relentlessly disciplined” and “focused,” according to Kopelman.
The panelists did have advice for budding entrepreneurs. Collison asked the crowd to “be selective in terms of your contrarianism,” while Ramaswamy spoke of the dangers of “trying to be different for the sake of being different,” telling the Under 30 crowd that they should be motivated by passion rather than by having the urge to build a business.
Asking four visionaries who built unicorns why they hate the term unicorn may seem like an empty attempt at humility, yet it is an accurate reflection of the challenges facing Silicon Valley, and the broader tech environment. As the internet revolution opens the flood gates of opportunity, and investors pour billions and billions into every potential shiny object, it becomes increasingly important to remain focused and avoid getting carried away. Or, take Ramaswamy's advice: "for the right team, the valuation can never be too high."
