In the bestiaries of the Middle Ages, the unicorn was a violent beast that could be coaxed into a tranquil slumber only by a virgin woman — at which point hunters would harvest its horn for its various medicinal properties. Yay.
Today’s startup unicorns — those that achieve $1B+ valuations — are having their own struggles.
A startup’s ultimate goal is to “exit,” resulting in an ROI for investors and founders either through an acquisition or IPO — but that’s tricky for any startup. Carta tracked 4,369 US startups founded in 2018. Of those, 2,707 have shut down, and just 15 have IPO’d.
Unicorns — like their mythological namesake — are supposed to be rare, yet a covid-era boom in VC spending saw 354+ companies achieve unicorn status in 2021, per Bloomberg.
Since then, high interest rates have dried up VC funding for sectors aside from tech’s buzziest — AI, of course. Many once-high-flying startups have been acquired for much less, lost considerable value, or collapsed.
Of 2021’s unicorns, fewer than 30% have raised funding in the last three years, per Carta data.
… let’s get back to the supposed rarity of a unicorn. Many startups are likely overvalued, according to experts.
How does that happen? Some startups make generous promises to preferred shareholders, rendering common shares “nearly worthless.” Stanford Business offered this example:
Bloomberg is calling this the “era of the zombie unicorn,” in which startups — many of which are still unprofitable — are struggling to find funding among more conservative investors.
They’re forced to agree to low-value acquisitions, raise at lower valuations, or take unfavorable deals — e.g., those that require changes in ownership or pay-to-play from previous investors. That is, unless there’s another boom like covid, but hopefully… not covid.