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.