The Unicorn Herd Expected to Thin In 2023

By Spencer Hulse Spencer Hulse has been verified by Muck Rack's editorial team
Published on January 26, 2023

When the term unicorn was coined, it represented a rare class of privately-owned companies with a value exceeding $1 billion. However, an astounding number of companies managed to cross the threshold in recent years. Primarily, it was due to plenty of funding and perhaps more upward momentum than was realistic, especially in the tech industry. Now, things are taking a turn, and the robust herd is beginning to thin.

The Number of Unicorns Rose Drastically Over Two Years

While the pandemic was a difficult time for people around the world, it also opened up many opportunities. Startups appeared, funding flowed, and valuations soared. Then, everything continued to go up, bringing about the rise of an unprecedented number of unicorn companies.

  • There were 925 companies added to Crunchbase’s Unicorn Board since the beginning of 2021.
  • Out of the more than 1,400 companies on the board, around 1,100 received valuations within the last two years.
  • More than $400 billion was poured into those unicorns, which have a combined reported value in the trillions.

While the Unicorn Board only reflects disclosed valuations tied to a priced funding event, the companies with recent valuations exceed three-quarters of the total companies. They also make up almost as much of the board’s total value.

Valuations Have Started to Return to Earth

The market has cooled, which has led to a drastic reduction in the number of companies reaching unicorn status. Even some of the top startups in the US and other countries do not make the cut. But many unicorns have managed to hold onto their status by taking appropriate actions, such as:

  • Cutting costs to stretch funds and avoid repricing.
  • Trade investor protections and control in exchange for a beefier valuation.

But companies are still taking damage, even if valuations have been maintained or kept private. Stripe has reportedly lowered its internal valuation several times, and Instacart has lost a large chunk of its valuation since 2021. Another example is Klarna, whose valuation dropped from $45.6 to $6.7 billion.

While the above companies did not lose their unicorn status, less valuable companies on the list do not have the same breathing room. It is expected that many companies will fall off as a new economic reality thins the herd. After all, the unicorns cannot hide from sight, or funding, forever.

There Is a Discrepancy Between Buyers and Sellers

Although companies have managed to hide from reduced valuations, the secondary market is not fooled. There is a major discrepancy between what buyers are willing to pay compared to what sellers are asking for, which is also called a bid-ask spread.

The discrepancy puts stock owners in an awkward position. They now have to choose between selling their shares at a price below what the valuation would demand or holding out and hoping things improve. The risks are quite daunting, especially in uncertain economic times, risking:

  • New financing at a lower valuation
  • Down rounds
  • Sudden collapse

Forge Global and EquityZen are platforms that help users trade shares in private companies, and both have noticed shares trading at nearly half price. Moreover, unless something changes, the discrepancy is likely to remain.

By Spencer Hulse Spencer Hulse has been verified by Muck Rack's editorial team

Spencer Hulse is the Editorial Director at Grit Daily. He is responsible for overseeing other editors and writers, day-to-day operations, and covering breaking news.

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