Concerns about high burn rates among tech startups are not new. They did not spring into being suddenly in the fourth quarter of 2021, the final three-month period of the most recent startup boom.
Rewinding to 2014
If you rewind the clock to 2014, investors were worried about tech startups losing too much money. Comments from Bill Gurley and Marc Andreessen from the period could be shared on Twitter today, and you probably wouldn’t notice that they are nearly a decade old.
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Did the Startup Market Listen to the Warnings?
Maybe a little, but I doubt that the startup market has changed significantly since 2014. After all, burn rates have always been a concern for investors and founders alike. However, it’s worth noting that the market conditions have changed since then. The easy money that was available in 2015-2016 is no longer around.
The Reality of Sticky Burn Rates
Sticky burn rates are a reality that startup founders and investors need to face. It’s not just about cutting costs or finding new revenue streams; it’s about understanding the underlying economics of the business. The data from SVB’s H1 report shows that unicorn-ish fintech startups in the United States have a median runway of 14 months, which is less than what was expected.
The Trouble Ahead
While the numbers may not be as bad as some people expected, there are still signs of trouble ahead. The time between venture rounds is expanding, and the raise cycles are getting longer. This means that unicorns have less runway and more time to raise capital before they need to return to investors.
A Reality Check
Are startups in the clear? No. I asked GGV’s Jeff Richards about the 14-month figure in question, noting that it didn’t seem devastating. He said that in a hot market, the figure was ‘not bad,’ but that in today’s market, it could prove ‘challenging.’
Less Runway and Longer Raise Cycles
SVB’s managing director for early-stage startups, Andrew Oddo, added to the conversation, noting that the time between venture rounds is greatly expanding. The SVB H1 report notes that the time between Series C and D rounds — prime unicorn territory — expanded from 16.4 months back in Q1 2021 to 20.9 months by the end of 2022.
Not Yet Over a Cliff
It just doesn’t seem that we’re about to watch a few hundred unicorns lemming themselves over a cliff. Not yet, at least.
Topics
- EC Market Analysis
- EC Newsletter
- EC venture capital
- Startup valuations
- Startups
- SVB
- The Exchange
Alex Wilhelm’s Bio
Alex Wilhelm was a senior reporter for TechCrunch covering the markets, venture capital, and startups. He was also the founding host of TechCrunch’s Webby Award-winning podcast Equity.
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