Peak Unicorn?

Dan Primack writes in Fortune that we might be seeing "peak unicorn".

Since landing in San Francisco on Wednesday, I’ve met with an assortment of senior venture capitalists, bankers, entrepreneurs and crossover investors. All of them have, in one way or another, been involved with so-called ‘unicorn’ companies. As in the past, they are nearly unanimous in sentiment. The difference now is that their sentiment is fear.

The past several years of raising too much, too high, too soon has run smack into a much more conservative investor ethos. Later-stage tech startups can still raise growth equity — and still lots of it — but not necessarily at the terms they were receiving just two months ago.

He follows up in his newsletter:

In response, many have shrugged and said something like, "Even if all of these companies were to completely fail, it wouldn't really have a broad economic impact. The amount of venture capital invested each year is tiny compared to the public markets, and just half of the amount of VC invested in the dot-com boom."

But that's a pretty narrow view of what matters, given how many people each of these companies employ (and how many new employees they keep adding). Research firm PitchBook reports that 91 of the U.S.-based unicorn cohort employ around 57,000 people, with many of them adding hundreds of new workers within the past year.

57,000 really isn't that many people. Apple employs about 40,000 all by itself. And since this bubble is equity financed, not debt financed like the housing bubble, if it pops the write downs will not impact general credit and economy function.

Also, the likelihood of unicorns absolutely failing is very low. You have to have some product market fit to get to the size they have, the only question really is of valuation. If valuations are too higher, and the investors have been smarter about the deal terms than the entrepreneurs, then the only outcome will be lower (or no) returns for the entrepreneur and modestly worse outcomes for the investors.