Silicon Valley VC fundingFrom myths to memes, the unicorn has always represented the highly elusive ideal: a beautiful creature so rarely seen, every sighting is both a privilege and an unforgettable event, as well as a sign of good fortune to come.

It’s understandable, then, that the term “unicorn” has come to be used routinely in the world of business funding to refer to those rare and beautiful privately funded startups—especially in the tech space—that have reached the upper echelon of valuation, being valued at over $1 billion.

To put that benchmark in context, the latest estimates place the total number of businesses operating in the U.S. at around 27 million. Of that number, only 98 are currently considered unicorns.

Historically, while unicorn startups rightfully garner a lot of media attention and interest throughout the venture capital (VC) community, smart investors have spread their money around among a large number of startups, both large and small.

But is that still the case?

Reasons for pessimism

The Venture Pulse Report for 2016’s second quarter was released in July of that year, based on data gathered from state and federal regulatory filings, direct confirmation with investors, or press releases. It reported on how dramatically VC had dried up for all but the most highly valued startups across the country.

After describing the uncertainty private investors were feeling about the future of the economy, the outcome of the presidential election, and other factors, Fast Company quoted Brian Hughes, a partner at KPMG (one of the organizations responsible for the Venture Pulse Report):

“It’s a challenging time for VC investors. Many investors are holding back to see how these uncertainties shake out, while others are focusing on companies they see as having a solid foundation and growth plan—like Uber, Snapchat, and Didi Chuxing.”

The same article noted, “the report indicates that when unicorn deals are taken out of the equation, deal count is down to 1,117, its lowest since early 2012. The report also found that funding for seed rounds was also down from 33 percent in 2015 to 28 percent in this quarter.”

So, while VCs were still very much involved in funding startups, the overall volume of deals had dropped significantly and was more heavily focused than ever before on those few rare unicorns. The obvious conclusion was that smaller startups vying for private funding capital would find it more and more difficult to obtain in the months to follow.

Reasons for optimism

Here we are, just a few months since those reports published, and what’s the current state of VC funding in the U.S.?

Surprisingly different, actually.

Upfront Ventures, a California-based VC firm, released its annual VC Survey Results in January. The report, drawn from an informal survey of VC firms across the country, painted a much more optimistic picture among private investors going into the new year.

Following is a summary of the major findings from Upfront Ventures CEO Mark Suster:

  • VCs are significantly more optimistic about the startup ecosystem and their likelihood of funding than they were just a year ago.
  • While a year ago many VCs were planning to cut their pace of investments, now very few are.
  • VCs don’t expect any serious corrections to valuations in 2017 and they seem to be taking financial discipline in later-stage companies more seriously, valuing unit economics over “growth at any cost.”

In just a few short months, the VC community has apparently shifted away from being highly cautious about funding newer, smaller startups and focusing primarily on large, well-established companies that were considered sure things. Instead, they’re planning to invest even more in 2017, but with a more strategic focus on startups of any size that can demonstrate “financial discipline” and “unit economics.”

And that’s really where the key to funding success lies: being able to effectively demonstrate financial discipline (a proven track record of fiscally responsible decisions and forward thinking strategy) and unit economics (the ability to make and justify those financial decisions on a “per unit” basis, such as “per user”).

So, it seems the tide has turned. If you’re sitting on a killer idea for a startup, maybe now’s the perfect time to throw caution to the wind and seek out the funding you need to turn your dream into a reality.

Well, give me a few more minutes…

What’s the real story?

It’s pretty commonly understood that, while there are always multiple angles to every story, the truth is often somewhere in the middle.

So what’s the real story—the middle, if you will—of the current VC outlook? If you have that killer startup concept, is now really the best time to take the next step? Or should you wait for more concrete signs that funding is going to be available for you?

As noted by Greg Stoller in an article for Fortune, the real story is that things haven’t actually changed all that much. Smart investors have always been cautiously optimistic when it comes to funding startups and small business growth. Although the VC, angel, and other private funding industries move with the general ebb and flow of the larger economy, there have been few times in history when funding simply wasn’t available. Likewise, there’s rarely been a time when it was so freely available that the details of your business idea really didn’t matter. (The notable exception being the dot-com explosion of the mid- to late-1990s.)

Looking at individual snapshots of the funding community’s thoughts and activities during a specific period of time may have its beneficial uses, but it doesn’t provide a big picture view of what it’s always taken to grab the attention of a smart investor.

Namely, Suster lists four attributes that any startup seeking VC funding needs to focus on:

  • Target large markets: If your proposed product or service has a very narrow, niche market appeal, it’s less likely to spark a VC’s interest.
  • Be prepared to give up equity: Investors increasingly want a larger slice of the pie in exchange for the working capital they provide. While founders struggle personally with this concept, the economics are simple and straightforward—it’s better to own 10 percent of a $6 million business than 51 percent of a $1 million business.
  • Build an experienced team: VC investors place a very high value on experience and proven skills, especially—but not exclusively—on the leadership team. In some cases, visionary entrepreneurs have been able to break into industries and markets they’re not personally experienced in by buying a business with experienced teams already on board before seeking funding for growth.
  • Realize your startup is only “special” to you: There’s really no room in an investor’s portfolio for sentimentality or special accommodations. While entrepreneurs tend to view their startups as unique and worthy of special consideration, VCs prefer uniformity and benchmarked standards for ROI, since they have stakeholders to answer to as well.

In addition to these four rules, investors are logically drawn to startups that have a solid business plan, adequate documentation, and evidence to back up even their most optimistic financial forecasts. They want to see founders who are equally passionate and realistic, dedicated to seeing the concept through to a strategic exit rather than just a quick turnaround.

In other words, all the attributes that make any business—large or small, tech or non-tech, startup or well established—attractive as an investment opportunity apply to attracting venture capital as well.

So, no: VC funding isn’t such a rare thing in Silicon Valley or anywhere else. You don’t have to be a unicorn to get it either. But you do have to deserve it—and that’s where smart entrepreneurs need to start.

Bruce is the U.S. and International Business Manager for Dynamis Ltd., the parent company of us.BusinessesforSale.com, one of the largest online global marketplaces for buying and selling small-to-medium-size businesses. He is focused on helping small businesses succeed and regularly writes about entrepreneurship and small business management.

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