Will 2016 be the year the unicorn becomes extinct?
Many experts believe that 2016 will be the end of the unicorn startup. Unicorns - those companies valued at $1 billion or more - have quickly transitioned from mythical creature to a relatively common beast in the startup world.
According to CB Insights, there are currently 153 unicorn companies around the world. For a long time, experts have feared that too many of these startups have been overvalued. These overvaluations, combined with the current fluctuations in the stock market, are making it incredibly difficult for companies to go public for what they are supposedly worth. As more and more businesses fail to live up to their coveted unicorn status, it seems it may be time for a market correction.
Signs the unicorn era is ending
Right now, the public market is simply not in a position to absorb such highly valued companies. MarketWatch said last month was the first month without an IPO since 2011 and the first January without an IPO since 2009.
MarketWatch discussed a myriad of other signs that the era of unicorns is coming to an end, from the fact that PricewaterhouseCoopers reported a 32 percent drop in venture capital investment in the fourth quarter of 2015 to the fact that, despite slight growth, the most recent Silicon Valley Venture Capitalist Confidence Index revealed that venture capital confidence remains at a 12-year low.
In addition, Fortune reported that Fidelity Investments lowered the valuations of 19 companies in January.
The New York Times explained that private market valuation adjustments are not uncommon. The need for corrections is actually quite normal in both public and private markets. The problem with many of today's unicorns, however, is that many of them do not have a sustainable plan for building revenue. Essentially, the ease at which startups have been able to access funding opportunities has made it incredibly difficult for any of them to gain a true competitive advantage over the others.
That being said, there are still companies out there expected to become unicorns this year. Inc.com recently released a list of seven startups that CB Insights analyst Matt Wong believes will hit the $1 billion valuation mark in 2016. Of course, predictions are just predictions, but it seems that while the rate of venture capital investment might be slowing down, it is certainly not stopping.
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