We need your help now
Support from readers like you keeps The Journal open.
You are visiting us because we have something you value. Independent, unbiased news that tells the truth. Advertising revenue goes some way to support our mission, but this year it has not been enough.
If you've seen value in our reporting, please contribute what you can, so we can continue to produce accurate and meaningful journalism. For everyone who needs it.
Sign in. It’s quick, free and it’s up to you.
An account is an optional way to support the work we do. Find out more.
By continuing, you are indicating that you accept our Terms of Service and Privacy Policy.
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.
To embed this post, copy the code below on your site
I’m pretty sure there must be some system in place for a US court to request an Irish to supply a warrant to hand over this type of information. And I can’t imagine there would be much reason for the Irish court to refuse in a case involving drugs. So it just seems like the US court is setting this terrible precedent because they couldn’t be bothered going through the proper channels.
Or am I missing something?
The article mentions a process called the Mutual Legal Assistance Treaty which facilitates these kinds of requests but apparently US prosecutors never contacted the Irish authorities….
I get a very clear picture that this is a channel they have been trying to open for a while because it’s not as constrictive in terms of it’s scope as the Treaty on what they could look for in the future once precedent is set.
Very troubling stuff really.
US law is not enforceable in the EU. We have something called Data Protection. Maybe Microsoft should use the IRS approach and say the Data servers crashed and wasn’t backed up so we lost it. If it works FOR the government, it should work FOR Microsoft. Or perhaps the US government could just ask NSA for the data? sure they record everything and anything they can intercept. if Microsoft do hand hand over the data then they will be breaking Irish Data Protection laws
John you are correct. Ireland does not cooperate with the 5 eyes network except in specific investigations where real probable cause is demonstrated to us.
The US has basically eliminated all of it’s protections esp the 4th ammendment and now they expect us to eliminate ours to make it easier for them to hovver up data, well we won’t be allowing it.
Any government in Ireland that was caught doing the kind of mass surveillance common in the US now would be out of office with angry mobs in the streets very quickly and they know that.
We may be a laundrette for their companies for taxes but were not going to be one for their police state, they can follow the process of get nothing.
You’re mistaken, you should look up the ECHELON agreement which the Irish government signed up to back in the last century.
Angry mobs in the streets? I doubt it! Irish people never got out in the streets to protest bank bailout, cuts to disability services, cuts to health services etc! Angry mobs are needed but not in irish psyche it seems!
You really really believe that? I don’t! The meek Irish who will just roll over and die for every politco that drives a unpalletable and hard barghain at them? They’ve NEVER stood up for themselves.. and never will.
NOT EVERYBODY IS A CRIMINAL.WE NEED OUR PRIVACY SO RESPECT IT.
Have you not heard. In the US you are guilty until proven innocent and even then you can still be jailed.
The USA will use their war on Drugs and terrorism to justify their big brother and bully-boy tactics. We have a department of Data protection and as far as I know, the ball is in their court.
This is nonsense. The data is in Ireland, then only the irish courts can release. The us needs to be told this in no uncertain terms. Their boarders are the end of their legal rights just like ours.
So are the emails to do with some international high profile drug dealer or some corner hustler?
Am, No.
We have a minister for data protection ?. Seriously …..
We have one for almost everything else.
Tor
Funny one this. As multinationals, the corporations can store data in privacy friendly jurisdictions to avoid scrutiny by more investigative jurisdictions. This case may be between two western nations over emails, but what if child porn could be disseminated out of Guatemala due to a friendly local administration and so was above reproach? Like different tax codes in different jurisdictions, corporations will pick & choose countries that best serve their bottom line, not necessarily what best serves their customers.
Microsoft are incorporated in the USA and would be required to comply with court orders there. Similarly the directors could held liable for non-compliance.
Yes, and by virtue of the fact that the data is physically stored on servers in Ireland means that it is subject to Irish Data Protection laws. If they hand over the data they are in breach of our laws.
Not just our laws, but European laws.
i think data belonging to any European citizen cannot leave europe
It can leave the EU under the safe harbour agreement between EU and USA
No worries. Ireland is the 51st state anyway in all but name so US court jurisdiction over it is a given. Of more interest is the sham of court intrusion because every email is automatically scanned by US and UK intelligence services. EVERY EMAIL. On the Internet absolutely nothing is sacred. In a digital world, there are no rights. We’re simply witnessing the death throes of the old analogue world order.
Surprised the Irish government weren’t joined as notice parties to the case in the US. That would have allowed them to put their case to the judge.
this is bullishit, data belong to the people, and storage location does not matter. Also, asking for data with warrant is not what worries us when we think of Microsoft, Google, Facebook.
this is bullishit, data belong to the people, and storage location does not matter. Also, asking for data with warrant is not what worries us when we think of Microsoft, Google, Facebook….
have your say