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May 20, 2022

Fundamentals are fundamentals because they are fundamental.

Nonetheless, not always are fundamentals recognized as such in short-term times – those magic and incomprehensible moments when rationality is diluted to future value in a sufficiently diffuse long term to warrant temporary creative arbitrariness.

In any case, fundamentals always remind us of how fundamentally they will be present in our daily lives, even when only a few voices insist on reminding us of their existence along the way.

It is also – has always been, will always be – that way in the enchanted world of unicorns and dragons. Those companies, immaculate in the eyes of their founders and supporters, are, pragmatically, just like any other companies in all different stages, industries and geographies.

And they must meet their harsh reality: companies only survive by positive cash generation and returns above the cost of the allocated capital. These are the two most essential dogmas in finance: cash is king and no free lunch. Easy to memorize, hard to dissimulate.

In the face of the abundance of venture capital made available by sovereign funds and pension funds throughout the globe, there have been incredible investment rounds in the innovation ecosystems in several places. Accelerators and incubators popped up everywhere, and even the more traditional large companies were inspired to create their own Corporate Venture Capital structures to join in the bonanza. Billions of dollars invested in appealing narratives, with slim probability of sufficient return for the high-risk stakes.

A value chain was created for the high-risk investment industry, splitting companies’ evolutionary stages between seed money and successive fund-raising rounds to the so-awaited Initial Public Offering or private acquisition by strategic investors. Between the foundation and the redemption, much adrenaline in the playful garages focused on exponential growth rates (or growth hacking, in the entrepreneurial jargon).

Nonetheless, in the face of the thundering collapses of iconic unicorns (such as WeWork and Theranos, for instance) and the disappointment in important digital companies (such as Netflix, for instance), a change of humors gained speed in the global capital markets.

Investors initiated two concurrent rational shifts: adjustments to the prices of digital assets and limitations to capital investment in serial rounds. Simply, cash is king and no free lunch once again steering the directions and destinations of those who should know the rules of the financial game.

The recent publication "Economic Downturn" by the acclaimed Y Combinator surprised many who were inebriated by successive irrational fund-raising rounds by companies with flimsy business models. But it was certainly received with relief by others who already expected more normal days in the allocation of financial portfolios.

It is important to stress there will always be available capital for high-risk ventures. The adjustment in vogue these days only shifts the axis, breadth and dispersion of investments to an economic rationality that ultimately seeks to properly remunerate the risk of the capital allocated to each class of asset, at each maturity stage.


Daniel Augusto Motta é Managing Partner e CEO da BMI Blue Management Institute. Doutor em Economia pela USP, Mestre em Economia pela FGV-EAESP e Bacharel em Economia pela USP. É Alumni OPM Harvard Business School. Atua também como Managing Partner da corporate venture capital WhiteFox sediada em San Francisco (EUA), como Senior Tupinambá Maverick na content tech Bossa.etc e com Membro do Conselho de Administração da Afferolab. Também atua como Diretor de Planejamento Estratégico da UNIBES e Membro do Conselho Deliberativo do MASP. Foi Membro-Fundador da Sociedade Brasileira de Finanças. Foi Professor nos MBAs da Fundação Dom Cabral, Insper, FGV, ESPM e PUC-SP. É autor de diversos artigos publicados por Valor Econômico, EXAME, VocêSA e Folha de São Paulo, e também tem três artigos publicados pela Harvard Business Review Brasil. É autor dos livros best-sellers A Liderança Essencial, Anthesis e Data Insights.