As of this week, there are now more than 1,000 startup unicorns scattered across the globe — a group of privately-held companies valued at $1 billion or more.
This is an extraordinary number, especially since the tally stood at 491 before the pandemic hit. As CB Insights founder and unicorn tracker Anand Sanwal cheekily put it this week: “Write down where you are right now while reading this newsletter so you can tell your kids.”
Given the rapidly changing market conditions, we need to ask ourselves: Have we hit peak unicorn?
It’s probably too early to declare the end of the endless venture capital flow. But venture capitalists we’ve talked to in recent days says things are changing. And certainly they note the capital firehose isn’t gushing like it was six months ago.
Belts are tightening. And VCs — known for their pack mentality — are cautiously watching many public tech stocks take it on the nose. Two Seattle venture capitalists told me that they are watching the changing market conditions closely, and while the big sell offs in tech stocks haven’t yet hit startup valuations hard, it may just be a matter of time
What’s the old adage? When America sneezes, the rest of the world catches a cold.
Same could be said for the public markets, as it relates to the startup world. The tech-heavy Nasdaq is down 10% in the past month, and public tech companies with strong Seattle roots like DocuSign, Zillow, Remitly, Adaptive, Rover and Accolade are off 20% or more.
Here are some things we’re thinking about as it relates to these changing dynamics.
- Startups are hard. Most fail, or never meet their grand expectations. Even well-capitalized startups face this challenge. Given that, what percentage of these 1,000 unicorns won’t make it? 40%, 60%, 80%. While we don’t know the number, whatever the case, that’s a lot of capital (and jobs) down the drain.
- Startup companies in the Seattle area raised buckets of capital in the past year. Based on GeekWire’s reporting, nine new unicorns were minted in 2021, bringing the total tally to 16. These startups, flush with cash, will need to be more thoughtful in how they deploy capital given current market dynamics.
- Unicorn startups are looking to upend a host of industries, from transportation to healthcare to finance to the much-hyped metaverse. There’s plenty of opportunity out there. But if the market continues to shift, money-losing startups will need to pivot quickly. And they may soon hear two dreaded words: down round.
- As Seattle angel investor Charles Fitzgerald wrote last week in his guest column in GeekWire: “Unappealing as it may be, founders must accept that valuation metrics are changing and comps from even a couple months ago are no longer valid.”
So, what’s this mean for the once elusive unicorn? Will more be crowned in 2022?
Yes, likely. But probably not the 70% increase we saw over the past two years.
And if the markets continue to turn, and VCs freeze, some of the existing unicorns that haven’t pivoted or found the metrics to justify their lofty valuations might be losing their horns in the coming years.