Quick unicorns usually disappear
- October 24, 2022
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Startups that quickly achieve unicorn status often don’t sustain their high valuations. While some reach greater heights, a large audience in sectors such as scooters and instant grocery delivery did not live up to high initial expectations.
To get an idea of how becoming an early unicorn correlates with future success, I’ve listed a sample of companies that passed the $1 billion mark in less than two years after founding in this text. I then categorize them based on their ability to sustain high valuations and market growth. The three categories are: Quick dips, public market flops, and those for whom the verdict still awaits.
First of all, it is obvious that many startups that quickly joined the unicorn herd also quickly disappeared.
The poster child for this phenomenon is likely Clubhouse, the audio-based social networking platform that became a thing in early 2021 for the pandemic crowd working from home. As the Clubhouse’s invite-only downloads increased, so did its cache among investors. The app, launched in 2020, won a Series B in April 2021 with a valuation of $4 billion.
Things have largely gone downhill since then. While the Clubhouse is still around, it’s no longer a trendy property. The app ranks 67th in the US in the social category on the Google Play Store by AppBrain. Meanwhile, looking to narrow its focus, the Clubhouse reportedly carried out layoffs in June.
Gorillas and Jokr supermarket instant delivery services were also quick to rise and then falter.
Berlin-based Gorillas, founded in 2020, raised nearly $1.3 billion in 2021, with a post-money valuation of around $3 billion. More recently, the company’s trajectory has been marked by layoffs, exodus from various markets and a focus on cutting cash burn.
Meanwhile, fast-delivery provider Jokr, founded in 2021, raised $430 million last year and recorded one of the fastest paths to unicorn status for any startup. It also slowed down fast. This summer, the company announced that it was closing its New York and Boston operations as it focuses on Latin America.
Public markets don’t support these numbers
Sometimes venture capitalists give companies much higher valuations than public markets support.
This was the case for Bird, the e-scooter rental platform that hit unicorn status in the fall of 2017, just a few months after its launch. In the following years, their branded scooters became ubiquitous on the streets of big cities.
Then, in May 2021, Bird announced that it would go public through a SPAC merger with an expected initial valuation of around $2.3 billion. It malfunctioned. Bird immediately plummeted after completing its merger in November. So far this year, the price has dropped further, with the shares recently selling at 36 cents apiece.
Desktop Metal, the 3D printing company that has enjoyed an unusually rapid rise to a billion-plus valuation, has also struggled in public markets. Although the stock has been trending up for a few months after its NYSE debut in December 2020, it has since seen a sharp reversal. Today, Desktop Metal’s market cap is around $800 million. That’s not a trifle, but it’s certainly well below its valuation as a private company.
New perspective on speedy unicorns looks dubious
Last year set the all-time record for startup investments, and many members of the fast unicorn club minted valuations of over billions just a few months or quarters ago. Thus, it is speculative to assess whether these values will be maintained in the short or long term.
So far, it seems doubtful to many.
On the one hand, some of these have been market trends driven by the pandemic that are showing signs of receding. For example, Hopin, a virtual, hybrid, and live event management platform that was founded in 2019, earned $1 billion in 2020 and 2021, reaching a peak valuation of $7.75 billion.
A year later, Hopin is cutting. The London-based company laid off 29% of its staff in July, after cutting 12% a few months earlier. The company is also repositioning its offering for broader appeal in a world where live events are back in vogue.
Thrasio, an aggregator of online brands that sell on Amazon, also quickly achieved a high rating. Founded in 2018, the Massachusetts company has raised $2.2 billion in equity financing and $1.2 billion in debt through the end of 2021 to fuel its lightning-fast growth.
Then his luck changed. As of May 2022, Thrasio was carrying out layoffs, and plans for a public offering with a potential valuation of $10 billion have been put on hold as e-commerce growth in the US slows.
Yuga Labs, known for its Bored Ape Yacht Club NFTs, is also facing a very changed environment, but nevertheless seems to be doing well. The Miami-based company, founded in 2021, raised $450 million in March with a valuation of $4 billion. Shortly after, prices for their signature images peaked. But even though they dropped, even the cheapest was still selling recently for around $110,000.
Then there’s Pacaso, a two-year San Francisco-based service to buy stakes in second homes that have reached unicorn status just five months after launch. Since then, US housing markets have been changing rapidly in the face of sharply rising mortgage rates. However, it is probably too early at the moment to conjecture about how Pacaco’s business model will fare.
Two other newly minted unicorns — Tel Aviv-based cybersecurity startup Wiz and Miami-based cryptocurrency payments and NFT upstart MoonPay — fall into a similar bucket. It will take time to see how they are managing to grow in these times of scarcity.
Is there a lesson here?
Are there lessons to be learned from the unicorn crowd? One obvious one is that generating buzz and high ratings at an early stage is not a reliable indicator of future success. Another is that when you’re betting on a trend, make sure it looks long-lasting (and not, say, a temporary adaptation caused by a pandemic).
Still, there is some truth to the notion that transformative companies and founders can be recognized early. When four-year-old Apple went public in 1980, for example, it was already a profitable company with a successful product. Google, founded in 1998, took just a few years to dominate the search engine space.
So yeah, it’s probably realistic to expect some of these fast unicorns to soar to incredible heights. Many, however, will fall to Earth.