Losing the horn: VCs think majority of unicorns aren’t worth $1 billion anymore

The past few years have been a rollercoaster for the startup world’s herd of unicorns.

Two years ago, we saw a record number of companies cross the $1 billion valuation milestone. But that momentum slowed to a trickle last year, and this year’s market conditions look likely to reverse course to a point that we may witness some of those companies losing that status.

Down rounds are likely to become the norm this year as venture firms and investors look to bring valuations back to earth. We’ve already started to see some decacorns, like Stripe and Instacart, lowering their valuations, but they are so highly valued that they aren’t at risk of losing their unicorn status. But most unicorns don’t enjoy that luxury.

CB Insights’ unicorn index shows that there are 1,205 companies currently worth over $1 billion. But if you look closely, you’ll notice that the majority of these startups are actually hovering right at the $1 billion mark. Currently, 685 unicorns were last valued between $1 billion and $2 billion — that’s more than half the list.

How many of these will stay unicorns through this calendar year? To find out, we recently surveyed more than 35 investors on how many startups they thought would drop below the $1 billion valuation mark in 2023. While nobody could peg a specific number, of course, the vast majority felt the herd has likely already been winnowed.

Several investors predicted that about a third of current unicorns are no longer worth $1 billion. When you consider that more than half of these startups hover right above that $1 billion line, per CB Insights, this seems like a slightly conservative take, especially given how much public company and larger startup valuations have shrunk.

“Up to a third, I would say, are decidedly worth less than [$1 billion], especially for the companies whose paper valuations are between $1 billion and $2 billion. Companies with high burn rates and structurally unsound unit economics will suffer the most (e.g., quick commerce delivery),” said Harley Miller, founder and managing partner at Left Lane Capital.

“It’s not just about whether they’ll still command ‘unicorn status,’ but rather whether or not they will be fundable, at any value, period.”

Ba Minuzzi, the founder and general partner at UMANA House of Funds, backed up that prediction with research from her portfolio.

“We kicked off the year [2022] with five portfolio companies holding the ‘unicorn status,’ two of which have already lost that status this year,” she said. “I believe this data is indicative of the overall theme — that two out of every five unicorns will or have lost their $1 billion valuation status. I do see this trend continuing in 2023.”

Several investors expect that number to be much higher, though, with predictions ranging from half, to 80% or even 90%.

For investors like Kirby Winfield, the founding general partner at Ascend VC, 80% of unicorns today are likely no longer worth $1 billion due to their public market comparable companies. Unlike early-stage startups, which are too far away from going public for public companies to be a good gauge, he thinks later-stage companies will meet a similar fate as their public counterparts.

Many companies at risk of losing their unicorn horn have been able to hide their misfortune thus far because they raised enough capital in 2020 and 2021 to have enough runway to put off raising in 2022. But many will start to run out of cash in 2023 and need to turn to their investors — a case in point being Norwegian grocery delivery company Oda, which dropped below the $1 billion valuation mark in December.

“Probably 80% of unicorns are not actually worth $1 billion right now,” Jon Lehr, co-founder and general partner at Work-Bench, said. “While most companies replanned in 2022 to extend their runway, 2023 is going to be the year of reckoning for unicorns. Most will see their horns (or wings?) clipped, as they can no longer delay fundraises given runway concerns and will need to raise down rounds.”

Just how many will get kicked out of the herd? We’ll have to wait and see.