Stories

The fall of unicorns

Illustration of two upside-down unicorns interrupted by cubes and glitches
Illustration: Eniola Odetunde/Axios

Public market investors are turning a more critical eye toward "unicorn" startups, particularly those with lax governance and big losses.

Why it matters: This comes after years of laser focus on top-line growth, and is challenging for older startups that had geared their business models to the old normal.

  • WeWork is the most obvious example, with its new co-CEOs frantically seeking to shed assets and slow expansion.
  • Postmates was supposed to have filed its IPO registration by now, but hasn't.
  • There are dozens, if not hundreds, of other mature startups caught with their income statements down.

What comes next could be familiar for anyone who's ever tried to find a plumber: More demand than supply.

  • Unicorn growth has been driven by an unprecedented number of large, later-stage venture capitalists. This includes not only the $100 billion SoftBank Vision Fund, but also hedge funds and mutual funds.
  • These "VC tourists" will thin out, putting companies in capital limbo.
  • Some startups will get ghosted by their "founder-friendly" VCs.
  • The result could be a wave of rescue rounds, in which share prices are crammed down, or outright fire-sales.

The bottom line: For companies with reasonable controls and paths to profitability, all systems remain go. We are, after all, still in the longest-ever bull market for public equities.

  • But for unicorns that never looked beyond the trough, it could be slaughter season.

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