Many unicorns may fail, but as a group they are likely undervalued
Unicorns — The entire point of the name “Unicorn”, first coined by Aileen Lee in November 2013, is to describe something very rare: “U.S.-based software companies started since 2003 and valued at over $1 billion …
Context & Ripple Effects
Aileen Lee coined 'unicorn' in November 2013 precisely because billion-dollar startups were supposed to be rare; by mid-2015 the label described dozens of companies, and this piece pushes back against both the scarcity framing and the doom reading. The argument is a portfolio claim: even if many individual unicorns fail, the group is likely worth more than its headline valuations suggest.
The surrounding coverage explains why the debate got so heated. A survey of 37 deals found liquidation preferences protecting investors in every funding examined, and a later study showed about half of 116 unicorns used complex stock mechanics to inflate headline valuations at the expense of employees and early holders — so the number everyone argued about was itself contested.
First-order effects
- Mutual funds holding pre-IPO stakes face the direct consequence: when they mark down their positions, as BloombergView analyzed in early 2016, the paper values behind the unicorn label start converting into reported losses for public-market investors.
- Founders and employees sit on the other side of those marks — the same preference stacks and structured rounds that propped up headline valuations mean late-stage investors get paid first when failures happen.
Second-order effects
- If the group-undervaluation thesis holds, disciplined buyers can acquire failed or stalled unicorns' assets below their raised capital, shifting pricing power in secondary markets toward whoever can wait out illiquidity rather than whoever printed the highest round.
- The valuation-inflation mechanics documented across the coverage pressure boards and later-stage investors to demand simpler cap tables, since the gap between preferred and common outcomes becomes the story every down-round exposes.
Third-order effects
- The pattern points toward the structural outcome the later data confirms: a record 1,200 VC-backed unicorns still private a decade on, with fewer than 30% of the 2021 cohort raising new funding — the billion-dollar mark losing its meaning as a rarity signal and the industry reorganizing around who can actually exit.
- Regulatory and accounting scrutiny of private marks, seeded by the mutual fund write-downs of the fund-holding era, becomes the mechanism through which private valuations eventually reconcile with public-market discipline.
The trend: Private-market valuations are drifting from a rarity badge into a persistent liquidity gap, where the aggregate pool of unicorns grows faster than the exit machinery that would price any of them honestly.