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The Rise and Fall of Valuation Obsession in the Startup World

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An Industry Obsessed

In the past seven years, something changed in the startup and venture capital world. The industry became fixated on valuations, taking the joy out of the business for many. But what happened? And how can we find a brighter future in the midst of uncertainty?

A Journey of Joy and Fulfillment

The author reflects on their early days as a programmer, where the focus was on problem-solving and the gratification of seeing their creations come to life. Back then, there was no money train, but that didn't dampen the enthusiasm. However, things started to change in the late 90s.

The Invasion of Money

With the arrival of the browser, the World Wide Web, and the first internet businesses, a golden period emerged. People were building, creating new solutions, and witnessing their ideas come to fruition. But then, money flooded in, driven by public markets and inflated valuations. The "new economy" was declared, and valuations soared without reason.

Caught in the Valuation Game

The author, swept up in the frenzy, started their first company in 1999. They experienced the allure of magazine covers, conferences, and artificial valuations. But when the dot-com bubble burst, valuations became irrelevant. Instead, the focus shifted to building and surviving in a challenging environment.

Learning From the Hard Times

During the difficult years that followed, the author learned valuable lessons about building products, pricing them, selling them, and serving customers. They embraced a mindset of avoiding unnecessary costs and striving for a neutral EBITDA. The absence of money forced a return to fundamentals.

A New Path as a VC

Transitioning to venture capital in 2006, the author sold their companies and embarked on a new chapter. The market downturn during the Global Financial Crisis presented an opportunity for reflection and exploration without the pressure of high expectations. The author discovered the joy of working with entrepreneurs and providing patient capital.

The Era of the Unicorn

In 2013, the term "unicorn" was coined to represent companies with a valuation of $1 billion or more. It symbolized a shift in business fundamentals, where valuations could easily reach $10 billion or beyond. The author expressed their disdain for this culture in a 2015 post, highlighting the obsession with valuations and quick money.

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The Culture Shift

The era of easy money and low interest rates reshaped the industry's culture. Valuations became the measure of success, attracting capital and talent. The focus shifted from building sustainable businesses to chasing valuation validation. It became challenging to operate differently in a market driven by valuations.

The Hangover and Sobering Up

As of November 9th, 2021, the valuation party came to an end. Companies found themselves worth less, and the market's obsession with valuations lost its appeal. The author acknowledges the need to find a sober equilibrium and observes signs of a new generation of startups untouched by the valuation frenzy.

A Return to Real Businesses

Amidst the changes, the author finds joy in discussions about the ROI benefits for customers and a renewed focus on building sustainable businesses. They appreciate founders who are passionate about their markets, products, and visions, regardless of the economic consequences. While outliers may achieve massive valuations, the majority of the industry thrives on building meaningful businesses.

A VC's Fulfillment

The author concludes by expressing their fulfillment as a VC in the present year, finding joy in working with founders, strategy, go-to-market approaches, and all aspects of building a startup. They are back to building real businesses, which brings them more joy than the obsession with valuations. By focusing on the fundamentals, valuations will naturally follow.

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