WeWork debacle is a threat for all startups
Masayoshi Son, CEO of SoftBank, has been determined to go ahead anyway even though some have suggested a delay. Since many major investors are yet to sign on, SoftBank remains the largest contributor with $38 billion.
Startups across the world will face two major challenges due to WeWork, which on the flipside might be good news for investors.
1. Prioritise profitable business model over rapidly increasing valuations.
The romanticism of startup ecosystem, the eagerness of investors to get on board early and help startups scale, has seen the number of entrepreneurs venturing out with new ideas increase over the past few years.
Success stories like that of Souq and Careem have also played a part in growing the ecosystem. However, since every investor gets on board with a plan to exit, increasing market valuations becomes priority.
However, as Masayoshi Son has told his portfolio companies himself to start getting profitable, this is going to put pressure on startups to deliver better results of growth and profit in a possibly shorter span of time.
On the other hand, the pressure to become profitable will possibly give investors a better pool of startups to pick from.
2. The possibly smaller investment size
With the world’s largest tech fund under threat, the larger startups might find it tougher to receive larger ticket investments. SoftBank’s Vision Fund has made quite a name for itself, with many investors across the world being interested in the next investment of Masayoshi Son.
However, the devaluation of WeWork as well as other portfolio companies of SoftBank, such as Uber and Slack, has brought scepticism in the market when it comes to SoftBank’s reputation of selecting the gems of the startup world.
The startups might also face stronger scrutiny and tougher questions from investors before they inject money.
The smaller investments also mean lesser risk for investors.
The best way forward in this case, is quite simply to have a stronger business plan that shows results, which can overcome scepticism from the market. Moreover, if you are able to become profitable sooner, you’ll be less dependent upon investors’ capital to grow your startup. Much like the old school ways of private equity.