The “unicorn glut” theory of the plight of startups

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Unicorn Plugmeet the excess of the unicorn.

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Private market tech companies worth $1 billion or more have long been an indicator of investor enthusiasm. The number of so-called unicorns minted in a given period was an indicator of how hot the venture capital market was at the time.

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For example, the birth rate of new unicorns has skyrocketed in 2020. according to CB Insights, growing from 25 $1 billion new startups in the first quarter of that year to 47 by the fourth quarter. The number of unicorn births then increased, reaching 115 in the first quarter of 2021 and peaking at 146 in the second quarter of the same year. Since then, this number has slowly declined, reaching 113 in the first quarter of 2022. In the second quarter, it could fall to double digits.


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The raw number of new unicorns is only the part of the dataset that matters. Venture capitalist and SaaS influencer Jason Lemkin recently noted on twitter that “the vast majority [venture capital investment] gone to unicorns and decacorns past [two] years” rather than an earlier stage company. This means that the venture capital boom was, to some extent, a unicorn bonanza.

The same CB Insights dataset shows how many VC unicorns ate last year. In 2020, for example, about $140.5 billion was raised in 633 nine-figure rounds — $100 million or more — in free compensation for venture capital deals that went to billion-dollar companies.

In 2021, those numbers rose to $366.6 billion after 1,569 nine-figure deals. The share of venture capital dollars invested globally that went into deals worth $100 million or more has risen from just under 50% in 2020 to nearly 60% in 2021.

(When we discuss the 2021 megarounds, we can’t help but mention the meteoric pace at which Tiger Global has invested in later-stage startups. Nor has the firm been alone in its temporary exuberance.)

While the unicorn venture market is slowing — CB Insights reports that 51% of venture capital in the first quarter of 2022 went to nine-figure rounds, or $73.6 billion in 364 deals — the biggest deals with the most valuable startups have been done in recent years. and even more since the venture capital market peaked last year.

This helped form the surplus of unicorns. What’s this? Lemkin describes it as “a huge over-investment in growth that would take startups years to build.” The problem, Lemkin continued, is that many of 2021’s biggest deals will take another three years or more to “grow into their valuations,” which “could slow investment growth for years to come.”




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