The term “unicorn” refers not only to a magnificent and mythical creature, but also to any private company valued at more than $1 billion. It’s a word we’ve heard a lot over the past few years amid a frenzied influx of digital health financing dollars and soaring startup valuations.
But the fascination with the idea of digital health unicorns isn’t very sustainable, according to Emily Melton, managing partner at Threshold Ventures. She said this on Monday during a panel discussion at HLTH in Las Vegas.
According to Melton, the current state of the market is best described using the analogy of when the lights come on at 2 a.m. after a long night of partying. Once you’re faced with the mess you’ve made and the money you’ve spent, you start to realize you need to tone it down a bit.
“There was so much money that went into the private markets early on because interest rates were low and people were taking risks,” she said. “And so access became something that was a challenge. People were willing to pay really high prices to get into the business, and that’s changing.”
As an investor, Melton said she is put off by companies that seem too focused on the price of their valuation. Instead, she likes to invest in companies that are focused on getting the capital they need to reach the next stage of inflection.
When it comes time to raise more capital, Melton suggested startup founders ask themselves how they can minimize distractions. She said it can help them set themselves up to get an apartment or move up.
“It’s a rational way of financing, and it’s kind of slipped away from us over the last couple of years,” she said.
Fellow panelist and Transparent CEO Glen Tullman agree. He fondly recalled what Lee Shapiro, managing partner at 7wireVenturessaid to start every meeting when he was CFO of Livongo: “Repeat after me – you are not your share price.”
Tullman cautioned startups against focusing on turning a profit early. Instead, he advised them to play the long game and lay out a clear path to how they can ultimately become profitable along the way.
It’s not about making frantic cost cuts so your company can last longer, but rather about how to differentiate your business model and product from the rest, according to Toulman.
Both he and Melton said they think the unicorn concept puts undue emphasis on stock prices, which are certainly not the ultimate goal of a company’s success.
“You’re not great company because you’re a unicorn. You’re not a bad company, either, if you take it down — that’s good,” Melton said. “Get the right capital and the right partners at the table so you can build a long-term business. And I kind of hope that after that, you’re going to have to stop hearing the phrase unicorn because I think it’s a false flag that has actually hurt a lot of people.