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Failed IPOs can give startups memorable lessons to avoid repeating the same fate.
Lessons Startups Can Learn From Failed IPOs
Lessons Startups Can Learn From Failed IPOs
Almost every startup, if not all, dreams of one day growing bigger and getting listed on the stock exchange.
The big dream mentality is understandable. Over the Denmark Phone Number List past few years, the global startup scene, including Asia, has been very active. In 2021, Credit Suisse reports that 19 startups in Southeast Asia have become unicorns — companies valued at $1 billion or more.
DealStreetAsia, a financial news website based in Singapore, says startups in Southeast Asia are raising more money - from $9.4 billion in 2020 to $25.7 billion in year 2021.
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But the happiness doesn't last forever with some newly listed startups. In the past year, a number of high-tech companies have shown signs of difficulty, such as Zomato and Paytm from India, Grab from Singapore, Bukalapak from Indonesia and Didi from China, among many other startups. .
Interestingly, many companies, such as Grab and Paytm, hold the top share of their market. Low returns, even in some cases large negative returns, have led to a disconnect between the valuations of the mass market and those of venture capital firms (VCs).
Nitin Pangarkar, Associate Professor in the Department of Strategy and Policy at the National University of Singapore Business School, outlines the lessons learned from these failed IPOs and which startups should take note to avoid. similar fate.
RISK INVESTORS ARE NOT ALWAYS RIGHT
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VC is the “holy grail” of many startups. However, after many failed IPOs, we should temper the belief that VC funding is a good proxy for a startup's future potential.
Undeniably, VC investors can spot a number of emerging technologies and promising companies. VC portfolio successes result in good portfolio performance and a reputation for savvy investors.
But venture capitalists can also suffer from some biases – such as fear of missing out and therefore being able to invest in companies that do not perform well over the medium to long term.
Startups should view VC funding, even at high valuations, as only a positive signal and a resource to execute their strategies.
The main focus of every startup should be to execute its strategy without being hit with VC backing. This will yield profitable results instead of just growth.
DO NOT BURN MONEY TO HOPE FOR FUTURE PROFITS
Many new technology companies sell their products or services below cost, assuming and hoping that they can make a profit after gaining market share.
It should be mentioned that many tech startups face financial loss after injecting large sums of money into marketing and technology in search of market leadership .
However, the market position and future profits are uncertain, as John D Rockefeller – an American business magnate and philanthropist discovered more than 100 years ago when he tried to establish the position. Dominion for Standard Oil Company.
The strategy of sacrificing the present for future gain did not work at the time, nor is it likely to apply today.
Thus, a realistic strategy for many startups is to make investments commensurate with their own resources. High efficiency, instead of extravagant spending, will improve sales and profitability, while conserving and creating resources for the startup.
FOCUS ON BASIC PRINCIPLES OF BUSINESS
The recent wave of investment and emerging technology companies has led some startups to overinvest, chasing market share by selling below cost and pricing unrealistically.
In fact, the dominant market position of those with low (or even moderate) barriers to entry is unlikely to be worth it, as in the case of Amazon's e-commerce.
Amazon's e-commerce business has been losing money for most of the quarter despite its size, maturity, and first-mover advantage. Due to moderate barriers to entry, Amazon is constantly facing new innovative competitors such as Shopify, Shopee, Flipkart, and Alibaba.
The interests of startups and their stakeholders can be well served if they focus on business fundamentals, such as current and future supply and demand balance, and sector economics (including barriers to entry) rather than a platform strategy.
As Warren Buffett has noted, even brilliant managers find it difficult to turn a profit in a fundamentally unattractive industry, and startups are no exception in this regard.
THE IMPORTANCE OF PLAN B (OR EVEN PLAN C, D, AND E)
In their quest to grow big and grow fast, many startups may overlook the importance of having a plan B.
Over-investing can be especially damaging to contingency planning as it depletes valuable financial resources and sometimes puts a startup on a difficult, expensive path to change.
Often, the business environment evolves in an unpredictable fashion, so businesses have to change their strategies, requiring more resources.
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