Top Venture Capitalist Predictions for Unicorns in 2016

In the last post the change in fortune of many unicorn companies was looked at, based on a recent article by venture capitalist Bill Gurley. Investors and investment experts such as Henner Diekmann of Diekmann Associates, venture capitalists such as Gurley and the founders of technology companies that have become unicorns are all beginning to see a shift in terms of financing, with many unicorns finding themselves in precarious positions. This post brings together some of the predictions made by top venture capitalists as to what will happen to many unicorns in the near future.  

1. Some venture capitalists will have tough decisions to make regarding whether or not to put more money into existing companies in order to dig them out of a hole, or cut their losses and invest somewhere new.
2. Venture capitalist investors will require start-ups to cut expenses in order to reduce costs. While cutting perks such as free lunches may be a start, the fact is that many companies will find themselves in a position where they have to start losing employees.
3. A higher number of companies will fail as they will be unable to raise the next round of financing.
4. Start-ups that sell mostly to other start-ups will experience the most problems.
5. Large companies like Facebook, Microsoft or Google may sweep up some of the unicorns facing a rocky present, but this is only likely if the move is strategic and the price is right.
6. A lot of companies will have to take a ‘down round’ rather than face bankruptcy.
7. Some businesses will entirely recapitalise their stock in order to survive, leaving many early investors and employees wiped out.
8. Unless companies start going public, many employees and investors will find that gains made through valuation are only there on paper.

The technology ‘bubble’ that has existed for the past few years may well have popped, but the fact is that the majority of start-ups do fail and this is essentially just a return to normal. Venture capitalists will still want to invest; it’s simply that more careful risk analysis is likely to come back into play.

The attached PDF provides an overview of some of the most successful unicorns to emerge over the past few years, showing that not all of these companies are headed for disaster.

The Future of Unicorns

Unicorn is a term that was coined in 2000s to refer to start-up companies with a valuation of $1billion-plus without an established performance record. This can be a stock market valuation or an estimation from venture capitalists. The term was initially popularised by Aileen Lee, a venture capitalist and founder of the seed stage venture capital fund CowboyVC, in an article looking at software start-ups founded since the turn of the millennium. In the article Lee noted that less than 1% (0.7%) of technology start-ups reached a $1billion valuation, making them as hard to find as the legendary unicorn. The term has now become widely recognised within the technology sector, including mobile and information technology. Professionals working with new start-ups and venture capitalists such as Namibian financial lawyer Henner Diekmann could well see a wholly different landscape in the coming months and years to that which was expected.  


Embed This Graphic On Your Site: <img src="https://s-media-cache-ak0.pinimg.com/originals/a5/fe/a8/a5fea86c11af4d24788fdb9e4e579a8d.jpg" width='540'><br /><a href='http://hennerdiekmann.blogspot.com/2016/08/the-future-of-unicorns.html '><br /></a></p> <br /> <p> Startups: The “Unicorns” [Infographic]</a></p> <br /> <p> </a>
This April, a blog post from another venture capitalist Bill Gurley called into question the future of unicorns, stating that a lot of these companies are now facing limited options. Essentially, too many businesses have taken too much money based on valuations that are unsupportable. Venture capitalists keen not to miss out on backing potential unicorns may have basically abandoned traditional risk analysis in order to acquire shareholder positions. These companies are now in a position whereby raising further funding from the private markets is virtually impossible, as the previous round of funding came with large caveats to protect these late-stage investors. On top of this, the numbers are not yet good enough for these firms to go public. Founders of unicorns are now beginning to face the consequences of this investment bubble, with many venture capitalists withdrawing support or demanding cut-backs on expenses, including staff, among other things.  



Despite this economic downturn for tech companies in Silicon Valley and beyond, there are still many unicorns in existence, as shown in the attached short video. In the post to follow you will find a list of some of the biggest unicorns to emerge over the past few years and be able to read some of the predictions made by venture capitalists as to the future of fast-growing start-ups.