Silicon Valley has mostly been dominated by the startups worth $1 billion or more, which we proudly call as the Unicorns. Their glory marked 2015 as the new era of technology and ideas that were established to change the way investors dive into this market. In fact, Forbes even marked 2015 as the Age of Unicorns. A billion dollar tech startup, which was once considered as a myth, was becoming the reality in 2015. But, it’s just a year and the news have already been flooded with the end of it. So, why is this colorful age of unicorns coming to an end so soon?
The year 2015 saw a whooping increase in the several billion dollar startups with around a total of 150 unicorns worth a total of $525 billion. Even the greatest of the companies, which were once a startup were envious of these remarkable funding. In fact, Google, the major technological giant, was never worth $1 billion in its initial days. Neither was Amazon as it too wasn’t worth $1 billion. It’s like on an average, 1.3 “Unicorn” companies were being created in 2015. And, now, the technological industry is crowded with such billion dollar startups creating a sense of fear among the people of Silicon Valley. But, why is the bold mentality of the people of the Silicon Valley changing?
Well! 2016 has proved to be the worst year in the history of startups with not even a single company going public or even applying for IPO. This has led several questions to the future of these Unicorns. If reports are to be considered, the recent valuations of startups reveal that none of them will be able to go public any time soon.
Global Stock markets have already seen a slow and depressing start this year, the world economy is slowing down, interest rates are increasing again and a very few startups are at the verge of going public. The Venture Capital funding is slowing down now because of the current valuations of the startups and their lesser impactful presence on the public market.
To worsen the situation, the private investors are evaluating their expectations, as the major startups, which went public in 2015 have begun trading below their IPO price in 2016, leading to downward valuation pressure on the current startups. This has led to the Venture Capitalists trading at even higher prices. They have started to hunt for the startups which have a potential of reaching a $10 billion valuation. In the past, there was just one company, FaceBook, which had crossed this threshold but now at least a couple of them including Uber with a net valuation of $41.2 billion. Thus, many startups are in the danger of losing their investors.
Because of their $1 billion valuations already, most of the startups have projected that they are not looking to get acquired and rather believe in establishing their world-wide brand. But, due to the changing scenarios and increased expectations of the investors, this is turning out to be their worst nightmare.
The CEOs of the budding startups are young and usually below 35 and it turns out that mostly they haven’t faced the 2000 capital market shutdown. People are now scared of facing the 2000 again and these are the same people who faced it before and saw the crash of the dotcom.
The younger proponents of the Unicorns claim that the age of dotcom was different and that they have real customers and revenue which was lacking in the dotcom era. But, no one in the VC world is optimistic about the world not facing the crash again.
Unicorns are preparing themselves by doubling or tripling their funding and reaching new marks in valuations but not all will make this transition. Some have started to getting acquired at a market rate way below their valuations. The ones that survive will shine and the ones that don’t will end up either getting acquired at a lower or equal valuation rate or getting lost in oblivion!