Turns out most unicorns today are more myth than reality

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?

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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: