It’s not always easy for startups to generate revenue, even when they’re well-funded and supposedly worth billions of dollars to venture capitalists. But some investors seem to be running out of patience with founders who are still trying to figure out their business models.
Fortune’s Erin Griffith recently wrote about Wall Street falling out of love with billion-dollar “unicorn” startups, in part because the revenue they generated in 2015 didn’t live up to the hype. Griffith says investors have told her that most of the 131 unicorn startups missed their 2015 revenue projections. One also told her the startup CEOs weren’t apologetic to investors whatsoever.
“They’re not even humble about it,” the investor told Griffith.
The truth is, a lot of companies struggle to generate much money during early revenue attempts. Sometimes they figure out it. And sometimes they run out of cash and die.
Pinterest, which seems like a really promising platform for advertisers, may be slower to monetise than investors previously expected; its head of partnerships, Joanne Bradford, left in 2015.
Snapchat, another prized unicorn startup, generated just $3.1 million in 2014 according to a leaked revenue snapshot obtained by Gawker, and it experienced a lot of turnover on its business side in 2015.
Snapchat was supposedly on track to generate $100 million in 2015, but it’s not clear if the company hit that mark or not; some advertisers publicly took issue with the fact that Snapchat doesn’t yet offer good reporting tools and engagement metrics.
It’s not just social media startups that struggle to generate revenue either. In 2014, Zenefits received unicorn status with just $20 million in annual projected revenue.
And many wonder how startups in the on-demand space, like Instacart or and Shyp, will reach enough scale to turn their low-margin services — like shipments and food deliveres — into significant revenue generators.
So what will happen to these unicorn companies in 2016, especially if investors stop giving them cash?
Fab, Evernote, Sidecar, and LivingSocial are good cautionary tales of well-funded startups gone bad. Others like Wish and Uber are already generating billions of dollars and are likely out of the woods. Others will be just fine even if their revenue is shy today. Remember Facebook generated $0 from mobile when it went public. Now its mobile revenue is the majority of its business.
Many startup founders are smart and know what’s at stake. In the case of Snapchat, Spiegel has been thoughtfully constructing the perfect business model for years. “This business needs to make money,” Spiegel told one of his investors, who was encouraging Snapchat to raise money instead of monetise. “I’d rather not burn another $100mm before we figure out whether or not we have a business.”