Downturn Against Fast-growing but Possibly Unsustainable Young Companies 

2nd December 2019

 In a recent industry podcast, SoftBank discussed its investment losses on young companies such as Uber Technologies and WeWork. The spokesperson talked about the need to be cautious where young firms are concerned and the need for investors to make decisions on the basis of sound fundamentals rather than trends or hype.

 

Many investors have been swayed by suggestions that young companies should naturally be bold and different. Now, following a spate of burned fingers, a change in attitude is evident amongst investors.

 

Take Uber as an example. The firm recently released its earnings call for Q3, talking about its efforts to move towards a profitable position by balancing revenue growth. Essentially, it appears to be discussing a more stable, temperate approach that prioritizes - at least to some degree - the certainty and trust that investors need in the form of solid returns. 

 

Of course, being Uber, this degree of temperance is relative, with the company losing 25 cents per dollar of revenue. However, the change of attitude at the executive level is enough to intrigue market analysts and to suggest a shift in fundamentals in the way that these young, tech-driven firms wish to be perceived. 

 

Obviously, fashionable start-ups and hype only go so far where private money is concerned. From its IPO in May, share prices in Uber have plummeted by 40%. Other similar tech startups with initially high valuations have also struggled to thrive as public companies.

 

Uber's market valuation hit a record low this month, as employees and private investors were once again allowed to sell their holdings after a restriction had been lifted. Many believe that the company would have seen an even sharper capitalization slide if its executive team hadn't rapidly started to talk about financial prudence.

 

The days of funding endlessly streaming into unprofitable start-ups must surely be drawing to a close. The bubble may not have burst as such, but it has certainly begun to shrink. Today's analysts and investors alike are far less inclined to throw capital at young firms who want to grow huge, rapidly. 

 

Once again, looking at Uber, the fact remains that most investors could have seen better returns from putting their cash into basic index funds. Uber was the most successful firm of its era and yet it's failed to deliver on its promised returns, despite having over $23 billion of stock!

 

Yes, things could yet change. Facebook Inc suffered a full 15 months of flagging share prices before it experienced a fundamental turnaround that saw it become an absolute must-hold for growth investors.

 

But investors must ask whether other young, growth businesses could even exist if they didn't have a constant stream of investor cash to keep them afloat. It's all very well talking about disruptive technologies, but if the firms behind them cannot independently exist on their own fundamentals, the motivation for smarter investors simply disappears. 

 

Here at Silicon Valley Associates, we watch the markets with great interest as investor fortunes invariably have implications for our hiring businesses and candidate interests. Bright young talent wants to work at businesses with the right brand, the right trajectory, and the right future potential. 

 

When talented individuals invest their skills, energy, and commitment into a business, they want to know that it will pay off. So, the business fundamentals - the hard indicators which assess how sound a firm really is - are arguably worth investigation for today's leading candidates, as well as for those seeking to invest.

-----------

Silicon Valley Associates is ideally positioned to support the continual demand from tech companies and IT Departments looking to hire in Hong Kong, Asia, and Worldwide. Please let us know if you would further advise on the above topic or your hiring needs

 

Follow us on    to get daily updates!

 

 

Contact Us Register your CV Blogs
To get updates and more, Subscribe Now! Register Now