The Funding Round Fairy Tale
Somehow, we’ve decided that the latest funding round is the new oracle of truth. A company raises money at a shiny price per share, and—boom—it’s crowned a billion-dollar “unicorn.” No profits. No proven path to profits. Just a slide deck, a charismatic founder, and investors tripping over themselves to get in. This isn’t a valuation. It’s wishcasting with a term sheet.
The absurdity starts with the assumption that a negotiated price between a handful of investors equals objective reality. It doesn’t. It equals what a small group was willing to pay at a specific moment under specific incentives. That’s not market truth; that’s a mood ring.
Losses Are Not A Growth Strategy
Let’s call this what it is: burning money is not the same thing as building value. Many of these companies proudly trumpet “growth” while hemorrhaging cash quarter after quarter. Losses are framed as virtue. Red ink becomes a badge of honor. If you question it, you’re told you “don’t understand scale.”
Scale of what, exactly? Scale of losses? Scale of dependency on the next funding round? When survival hinges on constant capital infusions, the business isn’t scaling—it’s floating. And floats eventually deflate.
Asset-Light Or Just Empty-Handed?
Another uncomfortable truth: many of these billion-dollar darlings own almost nothing. They lease their offices. They rent their servers. They outsource their logistics. They don’t even own the equipment they use to operate. Strip away the branding and the pitch deck, and what’s left?
In traditional valuation, assets mattered because they provided downside protection. You could sell them. Repurpose them. Leverage them. Today’s “asset-light” model sounds efficient, until you realize it also means “nothing to fall back on.” When the cash stops, the company doesn’t pivot—it evaporates.
The Magical Thinking Around Intellectual Property
Then there’s intellectual property, waved around like a talisman. “The IP is the value,” we’re told. Okay—show me the receipt. IP valuation is notoriously slippery. Unless it’s producing reliable cash flows, its worth is largely hypothetical. Patents that don’t generate revenue are ideas, not assets. Software that can’t monetize is a cost center with good branding.
Pretending IP can be precisely quantified without profits is like pricing a lottery ticket as if it already won. It’s optimism dressed up as accounting.
Private Valuations Are Not Public Reality
Here’s the part everyone conveniently ignores: private valuations are sheltered from reality. No daily pricing. No broad market scrutiny. No army of skeptics shorting the hype. The number holds until it doesn’t—and when these companies finally face public markets or acquisition negotiations, gravity returns with a vengeance.
Suddenly, the valuation isn’t based on vibes. It’s based on revenue quality, margins, customer retention, and—gasp—profitability. And that’s when the unicorn turns into a very ordinary horse.
Other Absurdities
- Investing Based On A Founder’s Resume. Prior success often reflects the efforts of an exceptional team, well-timed strategic pivots, and ample funding—conditions that are rarely replicable in a new startup.
- Investing Based On Who Else Is Investing. This is especially true when “big-name” investors are assumed to have performed exhaustive due diligence, despite the fact that meaningful diligence is impossible for a company with no operating history, no product, and no revenue.
- Investing Out Of Fear Of Missing Out. This mindset dominates portfolios built on a hits-and-misses model, where the hope is that a single outlier success will compensate for a long trail of failed bets.
Bottom Line
Valuing companies by their latest funding round is lazy, misleading, and intellectually dishonest. It rewards hype over discipline and storytelling over substance. Profitless, asset-thin, cash-burning businesses are not automatically worth billions just because investors agreed to pretend they are. Until valuation returns to fundamentals—cash flow, assets, and durable economics—we’re not witnessing innovation. We’re watching a very expensive game of make-believe.
We are so screwed.
— Steve
