Turns out most unicorns today are more myth than reality


An adult wearing a unicorn mask leaps over a chain-link fence
Image Credits: Lucas Knappe/EyeEm (opens in a new window) / Getty Images

The pace at which new billion-dollar startups are minted is in freefall.

Given what we’ve seen recently concerning the late-stage funding market, we shouldn’t be shocked. As late-stage dollars retreat and capital served up in mega-rounds — deals worth $100 million or more — evaporates, the fuel that once lifted many a startup rocket into the valuation stratosphere has sputtered. It makes sense that fewer companies would reach unicorn altitude.

Initially, I wanted to make an argument crossing falling M&A activity and initial public offerings with the decline in new unicorn creation, pointing out that without the ability to exit, of course the pace at which new unicorns were created would fall. If paper marks failed to turn liquid, paper marks would become worth less, right?

The Exchange explores startups, markets and money.

Read it every morning on TechCrunch+ or get The Exchange newsletter every Saturday.

That’s too generous an interpretation, because it rests on the assumption that the unicorns minted in the past were actually worth what they were purported to be.

Sure, the last venture capital supercycle really did build some real unicorns. Uber is worth north of $60 billion; Coinbase is worth a bit more than $16 billion this morning — you can fill in other names. But those are the outliers: Most unicorns have not found an exit, and as the market discovers that most billion-dollar startups aren’t natural, the capital flowing into them has slowed to a trickle.

Let’s take the argument one step further: If most unicorns did not exit during the boom and now cannot do so with their real valuations being lower than their last private mark (and is likely under the $1 billion threshold today), was the startup in question ever really a unicorn?

I would posit that the answer is no. Most unicorns never were what they were purported to be. Instead, a lot of startups were granted big budgets to LARP as unicorns thanks to outsized venture capital funds, in turn predicated on a combination of low interest rates and a choppy global economy brought on by COVID.

Don’t believe me? Check this chart from the new CB Insights Q1 venture report:

Image Credits: CB Insights; shared with permission

When did the pace of unicorn creation really kick off? The back half of 2020, per this chart, after which the rate was supercharged by investors thinking that the potential for tech growth was, if not unlimited, at least far greater than previously anticipated.

Given slowing tech growth in the wake of the COVID era, it appears venture investors and public-market money managers did understand that they were betting against a demand pull-forward instead of a new normal of incredible tech revenue expansion.1

So capital went to work predicated on a misunderstanding of future cash flows and valuations were built on the same misconception.

That resulted in several months of everyone getting prices wrong, which led to a massive spurt in the number of “unicorns” under accidental pretenses. And now we’re stuck with the aftermath of a failed experiment.

I don’t want to point fingers, mostly because I don’t care too much about the money in question. It’s not mine to invest, not mine to value and not mine to worry about. But it is worth understanding that unicorn valuations were mostly like the mythical animal they wanted to represent. They were not rare or even real; they were at best a shared fantasy.

You could argue that if we saw more IPOs during the 2020-2021 boom, we could have “confirmed” more unicorns. But I think the result of those debuts would have been largely carnage. Let’s use Allbirds as an example:

  • Allbirds raised around $200 million while private.
  • Its final private-market valuation was $1.7 billion (September, 2020), per Crunchbase data.
  • Allbirds raised $300 million in its IPO by pricing above its range, at $15 per share, and soared to $28.64 per share on its first day of trading.
  • From a market cap of more than $4 billion, Allbirds’ value has eroded to less than $200 million today, or $1.32 per share as of this morning.

Of course, we’re looking at a tech-enabled business instead of a pure-tech offering, but the situation is still illustrative given how many tech-enabled unicorns were built. It’s an extreme example, sure, but it shows how far off the mark both private and public-market investors were during the so-called unicorn era.

That’s not to say that we aren’t going to see great startups go public. We will. As well-known SaaS investor Jason Lemkin told us yesterday, there are a fair number of software startups out there with mega revenues and a valuation that fits today’s market. The problem lies with the companies still sitting on prices that are more fantasy than reality:

There is less of a unicorn traffic jam than I anticipated. The actual number of unicorns that have yet to exit, companies that can actually defend a billion-dollar price tag, is not too large to be insurmountable. The real problem is late-stage startups that simply have no shot at raising capital or exiting without a haircut that will feel more like a decapitation.

  1. For a good example of this, check Zoom’s pre-, during, and post-COVID growth rates.

More TechCrunch

Welcome back to TechCrunch’s Week in Review. This week had two major events from OpenAI and Google. OpenAI’s spring update event saw the reveal of its new model, GPT-4o, which…

OpenAI and Google lay out their competing AI visions

Expedia says Rathi Murthy and Sreenivas Rachamadugu, respectively its CTO and senior vice president of core services product & engineering, are no longer employed at the travel booking company. In…

Expedia says two execs dismissed after ‘violation of company policy’

When Jeffrey Wang posted to X asking if anyone wanted to go in on an order of fancy-but-affordable office nap pods, he didn’t expect the post to go viral.

With AI startups booming, nap pods and Silicon Valley hustle culture are back

OpenAI’s Superalignment team, responsible for developing ways to govern and steer “superintelligent” AI systems, was promised 20% of the company’s compute resources, according to a person from that team. But…

OpenAI created a team to control ‘superintelligent’ AI — then let it wither, source says

A new crop of early-stage startups — along with some recent VC investments — illustrates a niche emerging in the autonomous vehicle technology sector. Unlike the companies bringing robotaxis to…

VCs and the military are fueling self-driving startups that don’t need roads

When the founders of Sagetap, Sahil Khanna and Kevin Hughes, started working at early-stage enterprise software startups, they were surprised to find that the companies they worked at were trying…

Deal Dive: Sagetap looks to bring enterprise software sales into the 21st century

Keeping up with an industry as fast-moving as AI is a tall order. So until an AI can do it for you, here’s a handy roundup of recent stories in the world…

This Week in AI: OpenAI moves away from safety

After Apple loosened its App Store guidelines to permit game emulators, the retro game emulator Delta — an app 10 years in the making — hit the top of the…

Adobe comes after indie game emulator Delta for copying its logo

Meta is once again taking on its competitors by developing a feature that borrows concepts from others — in this case, BeReal and Snapchat. The company is developing a feature…

Meta’s latest experiment borrows from BeReal’s and Snapchat’s core ideas

Welcome to Startups Weekly! We’ve been drowning in AI news this week, with Google’s I/O setting the pace. And Elon Musk rages against the machine.

Startups Weekly: It’s the dawning of the age of AI — plus,  Musk is raging against the machine

IndieBio’s Bay Area incubator is about to debut its 15th cohort of biotech startups. We took special note of a few, which were making some major, bordering on ludicrous, claims…

IndieBio’s SF incubator lineup is making some wild biotech promises

YouTube TV has announced that its multiview feature for watching four streams at once is now available on Android phones and tablets. The Android launch comes two months after YouTube…

YouTube TV’s ‘multiview’ feature is now available on Android phones and tablets

Featured Article

Two Santa Cruz students uncover security bug that could let millions do their laundry for free

CSC ServiceWorks provides laundry machines to thousands of residential homes and universities, but the company ignored requests to fix a security bug.

2 days ago
Two Santa Cruz students uncover security bug that could let millions do their laundry for free

TechCrunch Disrupt 2024 is just around the corner, and the buzz is palpable. But what if we told you there’s a chance for you to not just attend, but also…

Harness the TechCrunch Effect: Host a Side Event at Disrupt 2024

Decks are all about telling a compelling story and Goodcarbon does a good job on that front. But there’s important information missing too.

Pitch Deck Teardown: Goodcarbon’s $5.5M seed deck

Slack is making it difficult for its customers if they want the company to stop using its data for model training.

Slack under attack over sneaky AI training policy

A Texas-based company that provides health insurance and benefit plans disclosed a data breach affecting almost 2.5 million people, some of whom had their Social Security number stolen. WebTPA said…

Healthcare company WebTPA discloses breach affecting 2.5 million people

Featured Article

Microsoft dodges UK antitrust scrutiny over its Mistral AI stake

Microsoft won’t be facing antitrust scrutiny in the U.K. over its recent investment into French AI startup Mistral AI.

2 days ago
Microsoft dodges UK antitrust scrutiny over its Mistral AI stake

Ember has partnered with HSBC in the U.K. so that the bank’s business customers can access Ember’s services from their online accounts.

Embedded finance is still trendy as accounting automation startup Ember partners with HSBC UK

Kudos uses AI to figure out consumer spending habits so it can then provide more personalized financial advice, like maximizing rewards and utilizing credit effectively.

Kudos lands $10M for an AI smart wallet that picks the best credit card for purchases

The EU’s warning comes after Microsoft failed to respond to a legally binding request for information that focused on its generative AI tools.

EU warns Microsoft it could be fined billions over missing GenAI risk info

The prospects for troubled banking-as-a-service startup Synapse have gone from bad to worse this week after a United States Trustee filed an emergency motion on Wednesday.  The trustee is asking…

A US Trustee wants troubled fintech Synapse to be liquidated via Chapter 7 bankruptcy, cites ‘gross mismanagement’

U.K.-based Seraphim Space is spinning up its 13th accelerator program, with nine participating companies working on a range of tech from propulsion to in-space manufacturing and space situational awareness. The…

Seraphim’s latest space accelerator welcomes nine companies

OpenAI has reached a deal with Reddit to use the social news site’s data for training AI models. In a blog post on OpenAI’s press relations site, the company said…

OpenAI inks deal to train AI on Reddit data

X users will now be able to discover posts from new Communities that are trending directly from an Explore tab within the section.

X pushes more users to Communities

For Mark Zuckerberg’s 40th birthday, his wife got him a photoshoot. Zuckerberg gives the camera a sly smile as he sits amid a carefully crafted re-creation of his childhood bedroom.…

Mark Zuckerberg’s makeover: Midlife crisis or carefully crafted rebrand?

Strava announced a slew of features, including AI to weed out leaderboard cheats, a new ‘family’ subscription plan, dark mode and more.

Strava taps AI to weed out leaderboard cheats, unveils ‘family’ plan, dark mode and more

We all fall down sometimes. Astronauts are no exception. You need to be in peak physical condition for space travel, but bulky space suits and lower gravity levels can be…

Astronauts fall over. Robotic limbs can help them back up.

Microsoft will launch its custom Cobalt 100 chips to customers as a public preview at its Build conference next week, TechCrunch has learned. In an analyst briefing ahead of Build,…

Microsoft’s custom Cobalt chips will come to Azure next week

What a wild week for transportation news! It was a smorgasbord of news that seemed to touch every sector and theme in transportation.

Tesla keeps cutting jobs and the feds probe Waymo