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WHEN SOCIAL MEDIA software firm Sprinklr unveiled its latest funding last month, it vaulted into the club of “unicorns” – or tech startups worth at least $1 billion.
That came just weeks after Slack, which makes a business software collaboration tool, entered the group which includes well-known names like Uber and Snapchat.
While unicorns are supposed to be rare, mythical creatures, the proliferation of these billion-dollar startups has raised eyebrows as well as concerns in the fast-moving technology sector.
More than 80 tech firms can now be called unicorns, according to a Forbes Magazine list.
The venture capital research firm CB Insights lists 53 US-based unicorns, saying the hefty valuations have been fueled by a flood of private equity investors seeking an early piece of the next tech superstar.
The use of the term “unicorn” began with a blog from investor Aileen Lee of Cowboy Ventures in late 2013, when there were just 39 of the creatures and an average of four “born” each year. The number created in 2014 rose to 38, according to CB Ventures.
While some of the unicorns appear to be headed for big things, unicorn fever has raised fears of a bubble in the private equity markets.
“You have a frenzy of investors looking for the next Facebook. They saw the possibility of a return of 1,000%,” says Rob Enderle, a consultant and analyst at Enderle Group.
But these are incredibly risky investments. All of these firms are not going to get a multibillion dollar buyout or massive public offering. I think we’re going to see a thinning of the herd.”
Dead unicorns
The unicorns include a handful of startups worth at least $10 billion, a group sometimes called the “decacorns.” These include China’s Xiaomi, Airbnb, Pinterest and Dropbox, in addition to Uber and Snapchat.
Some equity investors are getting nervous over the trend.
“I do think you’ll see some dead unicorns this year,” said Bill Gurley, a partner at the Silicon Valley venture firm Benchmark, at the South by Southwest festival in March.
Gurley, who has been a leading voice of caution on unicorns, said in a blog post that both investors and startups are pushing too hard, ignoring traditional standards of risk.
“We are in a risk bubble,” he said.
Companies are taking on huge burn rates to justify spending the capital they are raising in these enormous financings, putting their long-term viability in jeopardy.”
In a running Twitter conversation on the subject, Danielle Morrill of the research firm Mattermark said “I’ve narrowed it down to 61 potential dead unicorns. This is the stuff everyone is talking about but no one will publish.”
Prominent equity investor Marc Andreessen, one of the founders of Netscape during the dot-com era who now sits on the board of Facebook, expressed similar concerns in a series of tweets last year, saying too many startups are “burning” cash too quickly.
When the market turns, and it will turn, we will find out who has been swimming without trunks on: many high burn rate co’s will VAPORIZE,” he said.
Mark Cuban, an early dot-com entrepreneur, said on his blog that the current situation is “worse than the tech bubble of 2000″ because of “angel” investors investing in apps and tech firms with little scrutiny.
I have absolutely no doubt in my mind that most of these individual angels and crowd funders are currently under water in their investments,” he wrote. “Because there is ZERO liquidity for any of those investments. None. Zero. Zip.”
Precipitous drop
There appears to have already been some shakeout. The online retail startup Fab.com, which raised $300 million and joined the unicorn club last year, ended up selling most of its assets in March to the manufacturing firm PCH in a deal reported to be worth just $15 million.
Another former unicorn, the gaming service OnLive, was acquired recently by Sony for an undisclosed price.
Many startups have been able to raise cash from eager investors without heading to Wall Street for a public share offering. This also means the firms are not subject to the same scrutiny and publicly traded company for finances and governance.
Anant Sundaram, a professor at Dartmouth’s Tuck School of Business who specializes in corporate valuations, said that while financial data on these unicorns is often limited, few have demonstrated an ability to grow revenues and establish a sustainable business.
Based on historical data, I wouldn’t be surprised if a vast majority of these firms fail to live up to their valuations,” Sundaram told AFP.
Still, he said that these types of investments are part of the process of innovation and “creative destruction” which fuel the economy.
While this is reminiscent of the dot-com boom, Sundaram noted that in the last cycle, “You had similar businesses (that) came in with very high valuations and many went bust, but this produced a Google and an eBay and a number of other standouts.”
Peter Barris at the venture firm New Enterprise Associates said investment is flowing because ”we are in the early days of one of the most robust periods of innovation I’ve seen in my lifetime.”
In a blog post, Barris said he sees unicorns transforming the way we live.
Perhaps there will even be a flameout or two spectacular enough to become Valley legend. But many companies will justify that valuation, and some will go much, much farther,” he said.
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We do have a decent health care system. Health care is available to those without insurance. Living in the U.S I see that now. Health and education were the two things that I would have complained about myself in the past. It’s crazy that a visit to a GP here can cost up to 200 dollars! Yes our health care system is a bit messed up but at least it’s available to everyone.
I pity anyone with a serious illness in this country with the state of the health system. The government need to get their act together and start treating people with the dignity and respect they deserve and not with the disgraceful entity they call our health service.
Without the shadow of a doubt the stress that people are going through will throw up a lot of problems in the future for them ,it’s causing people to do away with themselves as is well known
Probably caused by stress and who do we blame for that?
Who really knows what’s the cause but I’d say a good healthy diet couldn’t hurt.
Smoking, lack of exercise, high fat diets, alcohol intake, lack of fruit and veg.
If all this things were addressed the rates of chronic disease would plummet.
And sugar consumption needs to be reduced in a big way especially amongst the female population. The oul ones love cakes and biscuits but good luck trying to change their ways
Soooooooo….we’re saying that rates of smoking and drinking and poor diet have increased in Ireland? Not likely…more likely caused thru increased stresses due to the economics issues of the past decade+…
Water flouridation?
for the thumb downers, report commissioned and then buried by ff and the greens when the were busy ruining the country, if you haven’t got time just read the conclusions and recommendations http://www.scribd.com/mobile/doc/167323404?secret_password=syvmvagq062jpi6lc6f&width=982
Interesting that you highlight a report which concludes that the only group potentially at risk are infants being bottle fed, and the article specifically refers to the over 50s.
Can you please offer ONE peer reviewed study which shows that fluoride as prescribed in the concentrations in Irish water (0.6-0.8 ppm) is unsafe?
If you want to talk to an expert on the subject I refer you to Aisling FitzGibbon.She will answer all your questions, should you have any https://m.facebook.com/TheGirlAgainstFluoride?id=401743916552576&_rdr
And are newborn babies being bottle fed not some of the most vulnerable? Their bodies and brains are still growing yet they are being contaminated by fluoride.
These are the ones we should be protecting the most
Having gone through severe stress myself in my twenties for a variety of reasons as a result in my 30s and high blood pressure and anxiety. I know so many others going through similar stress and it doesnt look good for the future as a nation
That’s the thing with stress it can manifest itself in many ways. I get stomach ulcers. At least with those I don’t have to take medication daily.
More than half of Irish people over 50 with two or more chronic diseases…this is a scary statistic. Whilst I’m not familiar enough to comment on our health system, I think it’s time we started looking at prevention rather than cure. That is what we put into our bodies, our food. Although we obviously make our own choices and many times we make very poor choices, we are not being helped by government and media.
Unfortunately there is big money for our government and food companies in making us choose unhealthy products and there is little appetite to inform us about the clear dangers. Eating a diet full of processed foods that are full of sugar and have additives such as high fructose corn syrup and aspartame are a recipe for disaster. These foods lack any real nutrients, are damaging to our bodies. We should be eating more natural foods that help maintain optimum health. It should be no surprise that after years of eating sub standard food, that people will begin to suffer a variety of health problems.
Another statistic from the summer stated that 31.8 per cent of our 7-8 year old are overweight or obese. Regardless of what shape the health care system is in, it is clear that we are breeding a nation of overweight, unhealthy, people who will unfortunately face numerous problems down the line.
Don’t want to have to visit the doctor as often ? Well stop eating rubbish and feeding your children rubbish and eat natural real food.
Chronic austerity and political flatulance.
An excellent case for the introduction of free GP care across the board, or at least for the under 40′s. Illness later in life costs the state a lot more and could easily be reduced by some basic socialising of the entry level health system to catch disease early on.
I’ve never understood the groups against water fluoridation. Everything the groups have to say that I’ve read have no scientific backing unless I’ve missed them in which case please show me so I can read. In the long run I think there are added benefits to it. But if you have a peer reviewed article or anything else you may find on pubmed about the topic I’d love to read it.
My friends house in North Dublin. The water from the tap is disgusting. Like drinking a cup of bleach. Gives you cramps. Fingal County Council.
I think there are benefits too. The FDA called it “…the greatest public health initiative of the 20th century.” But I would still like to see some kind of scientific study into the long term effects of fluoridation.
What good is the extended life span we are always being told sets is apart from our ancestors if we spend that extended time sick?
Longer life expectancy is usually pushed as our biggest achievement, the morbidity rate (ie – rate of chronic diseases) has raised just as much, but it’s not talked about enough.
Wonder what they will suggest, more low fat, high sugar and chemical laden diets? More drugs?
At age 64 I discovered a way to completely reverse my Diabetes Type 2.
Wrote a short eBooklet on how I discovered it.
Available free on Kindle Prime – “The Walnut Cure for Diabetes Type 2″
Hope it works for you or friend or family member.
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