The modern tech phenomenon of start-ups being valued at over US$1bn, and thus becoming ‘unicorns’, may be coming to an abrupt end.
The warning signs were everywhere earlier this year when venture capitalists were betting anyone in the world US$100,000 that their growth predictions would come true.
‘There is no bubble’ was the rallying cry, a statement always lined up behind truth and reliability.
Now, it seems, the ‘no bubble’ may have burst. Which makes me think, what is left after no bubbles burst, considering nothing remains after bubbles burst?
Anyway, Mattermark, a company that tracks both businesses and investors, recently wrote a blog post about what it had observed, which was vastly less money made available to start-ups.
On the back of a Wall Street powered tech start-up investment splurge, the last five years have seen companies with little or no tangible value raise hundreds of millions of dollars.
Apps, games, services, you name it. But thanks to a struggling Chinese economy and a Federal Reserve reigning in the madness, times are now changing.
“I’ve realised the odds that my own start-up will capitalise on one of the biggest run-ups in valuations of the past two decades is unlikely,” says Danielle Morrill.
A sentiment of fear
And it’s not just Morrill’s Mattermark blog that is setting tongues wagging. Fortune’s Dan Primack recently went to San Francisco to gauge the mood of investors and, to his surprise, it wasn’t good.
Rather than VCs universally driving for greater discoveries on the back of what, to an outsider like myself, seems spurious maths, now “their sentiment is fear”.
Primack suggests this dying off of the unicorn age is so fresh, “only five or six weeks old”, that the illness hasn’t even been spotted by many in the wild.
The surprise that there will now be a slowdown in massive valuations comes on the back of data showing on average 1.3 unicorns created every week this year.
Michael Moritz, chairperson of Sequoia Capital, discussed the unicorn craze earlier this year as a strange environment, with the inclusion of doomed businesses certain to affect the sentiment in start-up valuations somewhere down the line.
“Several years ago the atmosphere wasn’t as euphoric as it is today. Even the zaniest ideas can attract money,” he said.
“There are a whole bunch of crazy little companies that will disappear. There are a considerable number of unicorns that will become extinct.”
This all means that the elusive batch of European unicorns may not come to fruition anytime soon.
Main image via Shutterstock
