What’s the future of tech startup unicorns?
A tech startup “unicorn” is a tech company that has a valuation of $1 billion or higher. These companies are often viewed as ideal for investment purposes for venture capitalists. However, there are some concerns among professionals about the rapid rate at which tech startups reaching unicorn status are coming into existence.
In 2014, there were only 45 private companies who had reached unicorn status. However, two years later, in 2016, there are now 148. Some people, such as venture capitalist Bill Gurley believes that all of the tech startup unicorns are creating a risk bubble that could one day pop.
Is there really a bubble?
Bubbles are created when prices of assets ascend way higher than the actual value of the assets. They pop when the market realizes that the assets are overvalued and prices drop to reflect their true value.
Many believe that this could happen in the tech startup world due to the extreme rate at which unicorns are being produced. It is true that the massive influx of capital into these companies does reflect a similar pattern to other bubbles such as the dot.com bubble, or the real estate bubble in 2008.
The other perspective.
Despite the appearance of a bubble with all of these startup unicorns being created all the time, there is a chance that the prices actually do reflect the true values of the startup companies. Some tech startup unicorns are actually creating immense value and shaking up entire industries. AirBnB and Uber are two perfect examples of that.
So, when you look at how much tech startup companies are actually impacting the world and generating value, one could argue that the rapid rise in unicorns actually does reflect value that is being created.
It can be very difficult to tell if a market is forming a bubble. The reason is because sometimes markets do generate extreme amounts of real value in short periods of time. This explosion of unicorn companies in the tech sector is no different.
However, if there is a bubble, then it is likely to eventually pop. If it does, then those with capital investments in the wrong companies can experience major losses.