Are unicorns becoming zombies? (with Roee Hartuv)
There are 1000s of privately held unicorns. Will they ever exit?
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For years, we in the startup world have obsessed over one thing: minting unicorns.
Investors have poured billions into promising companies, hoping they’ll skyrocket into the next Uber or Airbnb.
But what happens when that breakneck scaling leads to billion-dollar valuations without actual profitability?
Enter the zombie unicorn (yes, this magical creature sounds awesome, but it’s not) — a business that looks like a success on paper but is fundamentally unsustainable.
These companies burn cash to fuel rapid expansion, often at the expense of long-term stability. And now, with the post-2022 market correction, the cracks in this model are starting to show.
So, is it time for a shift? Can VC move away from its obsession with high valuations and rapid scaling toward a model that prioritizes sustainable growth?
If so, what does that mean for the future of startups and the investors backing them?
That’s exactly what we dive into together with Roee Hartuv who wrote a paper on just this problem.
Here’s just a few takeaways:
The concept of "Zombie Unicorns" refers to companies valued over $1 billion but are struggling and may not succeed.
These companies often grew rapidly due to high valuations and growth expectations, especially in the SaaS market.
The pressure to maintain high growth rates led to excessive spending and increased cost of acquisition.
The decline in the SaaS market in 2021 exposed the vulnerabilities of these companies, making it difficult to achieve growth targets.
The business models of investors, particularly VCs, which prioritize quick returns, are often misaligned with the sustainable growth of companies.
Many companies that achieved unicorn status are now facing difficulties in exiting or raising capital.
There is a growing trend of down rounds and companies being acquired for significantly lower valuations.
The focus is shifting towards efficiency, productivity, and achieving profitability rather than just growth at all costs.
Watch the episode here
00:00 Introduction
02:25 Understanding Zombie Unicorns
04:30 The Rise and Fall of Valuations
06:33 VC Expectations and Company Growth
12:01 The Fragility of High Valuations
15:17 Current Market Trends and Valuations
19:35 The Rise of Zombie Unicorns
20:18 Down Rounds and Valuation Challenges
20:51 Future of Unicorns and IPOs
26:48 Impact on Revenue Leaders
32:06 Pricing and Packaging Strategies